The National Council of Chain Restaurants released a new report this week on the impact of federal ethanol policies, specifically the U.S. Environmental Protection Agency's Renewable Fuel Standard (RFS), on the chain restaurant industry, commodity prices and the food supply chain.
The 32-page report can be read in its entirety at NCCR.net. The organization commissioned PwC US to research the potential cost and economic impact of the federal mandate to chain restaurants.
According to a press release, PwC estimated the impact under several scenarios and concluded that the RFS mandate could cost chain restaurants up to $3.2 billion annually, with quick-service restaurants witnessing cost increases upward of $2.5 billion, and full-service restaurants seeing increases upward of $691 million.
The report says: "Policies encouraging the use of ethanol not only impact the corn market, but have unintended consequences for other parts of the economy. Corn is an input into the production of a wide variety of food products, from baked goods to meat production."
"The use of corn-based ethanol required by the federal Renewable Fuel Standard mandate has dramatically distorted the market and increased costs throughout the food supply chain," said Rob Green, NCCR executive director. "The RFS mandate artificially inflates the price of corn, which increases costs throughout the system, from cattlemen and poultry and pork producers to dairy farmers and restaurant operators.
Ed Anderson, owner of a 4-unit Wendy's franchise in Virginia and chairman of the Wendy's Quality Supply Chain Cooperative, said the mandate is costing him $20,000 to $30,000 per restaurant.
The NCCR is calling for the federal RFS mandate's repeal.
Biotechnology Industry Org claims NCCR ignores imported oil costs
The Biotechnology Industry Organization responded to NCCR's report and call for a repeal, stating that restaurants are "scapegoating" the RFS. Imported oil, BIO says, is the real villain in this scenario.
Brent Erickson, executive vice president of the BIO's Industrial & Environmental Section, released the following statement in response to NCCR's report:
"The latest attack on America's renewable energy policy blames biofuel for food cost increases while ignoring the 300-pound barrel of imported oil in the room. The U.S. Energy Information Administration has documented the correlation between oil prices and inflation, including food prices. Yet, the report by the National Council of Chain Restaurants attempts to shift consumers' attention from this real world impact to projected impacts from renewable fuels.
"The Environmental Protection Agency recently completed an exhaustive analysis of the Renewable Fuel Standard, finding that in 89 percent of 500 modeled scenarios the law had no impact on demand for ethanol and by extension corn and food prices. EPA further emphasized that the outcomes of the other 11 percent of scenarios were both 'very unlikely' and small. The NCCR report modeled only two scenarios that were both higher than the average impact found by EPA. The conclusion of EPA's study is clear — the market is allocating corn to its most highly valued use, which is to reduce this nation's reliance on expensive imported oil.
"The fact is that the high price of oil creates demand for lower-cost ethanol. And farmers, whose production costs are impacted by petroleum prices, must seek new markets for their products in order to recoup costs.
"The RFS has encouraged U.S. companies to make significant investments in accelerating development of new technologies and building new facilities for advanced and cellulosic biofuels. The first commercial gallons of cellulosic biofuel were registered with EPA this year and new large-scale biorefineries are currently being commissioned. Dismantling the RFS, as NCCR seeks, will halt this progress toward tomorrow's solutions for energy security."
Read more about operations management.