Industry News | November 28, 2012

Study: Federal Ethanol Policies Could Cost Quick Serves $2.5B

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The National Council of Chain Restaurants today released a new, comprehensive report 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 was released during a Capitol Hill press conference.

“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,” says 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 states. “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 quick-service 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 says. “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,” says 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 says. “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 represent 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 says.