National Council of Chain Restaurants urges RFS repeal

Dec 1, 2012

The Environmental Protection Agency (EPA) recently denied requests for a waiver of the Renewable Fuel Standard (RFS), allowing for as much as 40 percent of America’s corn crop to be processed into biofuels instead of food. Their decision has sparked continued controversy over EPA’s method used to reach its conclusion, driving one organization to conduct its own research.

The National Council of Chain Restaurants (NCCR) released a report last week on the impact of federal ethanol policies, specifically the EPA’s RFS, on the chain

restaurant industry, commodity prices and the food supply chain.

The 32-page report can be read in its entirety at

“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 NCCR Executive Director Rob Green. “The RFS has had an adverse effect on the chain restaurant industry, which has witnessed marked increases in commodity prices and associated costs to the tune of billions of dollars a year.”

To study the impact of federal ethanol policies on the chain restaurant industry, NCCR commissioned PwC US to research, analyze and estimate the potential cost and economic impact of the federal RFS mandate. PwC reviewed numerous public and private reports and combined these findings with chain restaurant survey data to calculate the overall cost of the RFS mandate to chain restaurants.

“Policies encouraging the use of ethanol not only impact the corn market, but have unintended consequences for other parts of the economy,” the PwC report said. “Corn is an input into the production of a wide variety of food products, from baked goods to meat production.”

PwC estimated the impact under several scenarios and concluded that the RFS mandate could cost chain restaurants up to $3.2 billion annually, with quickservice restaurants witnessing cost increases upward of $2.5 billion and full-service restaurants seeing increases upward of $691 million.

“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,” Green said. “The RFS mandate forces small business owners, franchisees and their suppliers to spend higher and higher sums on commodities, which ultimately drives up prices on the end-user, the consumer.”

“Chain restaurants aren’t all mega-corporations,” said Ed Anderson, owner of a four-unit Wendy’s franchise in Virginia and chairman of Wendy’s Quality Supply Chain Cooperative. “Many are systems of small business franchises like the one my family owns.

“The government picked winners and losers when they passed the RFS mandate,” Anderson said. “This mandate is costing me $20,000 to $30,000 per restaurant. It is blatantly unfair and we urge Congress to repeal it.”

The production of ethanol and its byproducts represents the largest use of U.S. corn production with roughly 45 percent of all U.S. corn dedicated solely to ethanol production. Reflecting that use, the price of corn has nearly quadrupled since the RFS mandate was established in 2005. Higher corn prices have translated into higher commodity prices, grain prices, feed prices and consumer prices.

“The federal RFS mandate is essentially an ethanol tax on consumers and should be repealed,” Green said.

The Grocery Manufacturers Association (GMA) also voiced disappointment on the rejection.

“GMA, as well as numerous policymakers, NGO groups and other associations, sought the waiver to provide temporary relief to consumers who have seen food prices rise steadily since the implementation of the Renewable Fuels Standard, which diverts nearly 40 percent of the corn crop away from livestock feed and food production. The RFS has and will continue to disrupt commodity markets and exacerbate the impact of last summer’s devastating drought on food prices at a time when Americans can least afford it,” the group wrote in a statement.

“The waiver provision was established to provide market relief in extraordinary conditions such as those created by last summer’s drought. The EPA’s decision to reject the waiver requests despite great and obvious need suggests that it is time to rethink the flaws of the RFS and move away from misguided food–for–fuel policies once and for all,” GMA continued.

American Fuel & Petrochemical Manufacturers (AFPM) President Charles T. Drevna said the entire system is flawed.

“The issues highlighted during the waiver comment period further emphasize the fact that the RFS is fundamentally flawed and should be repealed. Failing to eliminate this mandate will adversely impact consumers and our economy,” Drevna said.

Drevna points out that AFPM supports the sensible integration of alternative fuels into commerce, and believes that consumer choice in the marketplace, not mandates, should dictate how these fuels are used.

“The growing chorus of concern from food, livestock, engine, and consumer communities continues to highlight the mandate’s unintended consequences and destructive nature,” Drevna said.

“The original intent of the RFS was to wean the country from a dependence on oil, especially foreign, amid erroneous concerns that we would soon deplete the domestic oil supply. Just five years later, the United States is on track to surpass Saudi Arabia in oil production by 2020, effectively rendering RFS obsolete. We have the capability of being energy self-reliant, but only if excessive and ineffective mandates are repealed. At stake are jobs, economic growth and a stable national security,” Drevna continued.

The head of the UN’s Food and Agricultural Organization argued that a suspension of the RFS “would give some respite to the market and allow more of the crop to be channeled toward food and feed uses.” Governors, farmers, anti-hunger groups, environmental organizations, and a distinguished collection of experts from leading American universities have all urged EPA to waive the RFS.

“The agency’s decision is disappointing and doesn’t make much sense in light of the circumstances,” said Jonathan Lewis of the Clean Air Task Force. “But it does make one thing clear. It’s time to overhaul the ethanol mandate.” — Traci Eatherton, WLJ Editor