Industry responds to latest report attacking the RFS

By Susanne Retka Schill | November 28, 2012

A new report released by the National Council of Chain Restaurants generated a swift response from the organizations representing the ethanol and advanced biofuels industries. The NCCR commissioned the study, “Federal Ethanol Policies and Chain Restaurant Food Costs,” from Pricewaterhouse Coopers LLP to estimate the impact of the renewable fuel standard (RFS) on the input costs of chain restaurants.  

“The use of corn-based ethanol required by the federal renewable fuel standard (RFS) 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.”

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. NCCR commissioned PwC US to research, analyze and estimate the potential cost and economic impact of the RFS. 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. “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,” the NCCR said in statement accompanying the report’s release. “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.”

In their responses, the biofuels industry trounced the NCCR for focusing on the RFS as the cause of cost increases, neglecting the role of oil prices.  

“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,” said Brent Erickson, executive vice president of the Biotechnology Industry Organization’s Industrial & Environmental Section, in a statement. “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 true culprit behind rising food prices is the cost of energy, and in particular oil,” said Growth Energy CEO Tom Buis in a statement. “Only 14 percent of the price of food is attributable to the cost of the commodity, while the rest can be attributed to energy costs and marketing. The processing, packaging, wrapping, storage, refrigeration and transportation costs are the true drivers in price increases. They are all energy intensive – it takes a lot to bring food from the farm to the table.”

The biofuels organizations were also critical of the methodology used in the NCCR report and the analysis of food inflation, in particular.

For the Renewable Fuels Association, President Bob Dinneen, pointed out that, contrary to what he called the NCCR’s scare tactics, food prices are not advancing abnormally. “According to USDA and the Department of Labor, annual food inflation in 2012 and 2013 will be right in line with the 20-year average. In fact, food inflation rates since the RFS was adopted in 2005 have, on average, been lower than they were throughout the 1980s and early 1990s,” Dinneen said in a statement. He also criticized the studies used in the NCCR report, saying one was four years old and discredited while more recent peer-reviewed work was ignored.

One recent analysis Dinneen pointed to was commissioned by the International Centre on Trade and Sustainable Development that found that corn prices wouldn’t have been any different at all in 2009-’10 (the last year examined) with or without the RFS in place. That study also found that prices for beef, broiler meat, pork, and eggs would have been no different from 2005-’10 with or without the RFS. Also contrary to the NCCR study’s claims about the effect of the RFS on prices for other crops, Dinneen said, “the ICTSD study showed 2009-’10 prices for wheat and rice were higher by less than 1 percent because of the RFS, while soybean prices were 1.7 percent higher. Clearly the RFS is not affecting the prices for these crops in a noticeable way.

Some of the industry’s responses were also critical of the sector NCCR represents.  “These groups distort the facts in order to justify higher profits,” Buis said. “[They] ignore the fact that Americans pay the lowest per capita cost for food in the world.”

Brian Jennings, executive vice president of the American Coalition for Ethanol, noted there are consequences for the huge amount of ‘food away from home’ eaten by Americans at chain restaurants. “Americans notoriously pay much more for eating out, not because of ethanol or even the food served at chain restaurants, but because of marketing, transportation, labor, and other expenses driven by the price of oil,” said Jennings. “We refuse to take criticism from an industry that charges consumers four times what fast-food companies pay for food, and then literally throws millions of dollars’ worth of food in the trash every year. Our industry manufactures more than 33 million metric tons of distillers grain every year, which is enough cattle feed to provide every person in the U.S. with 4 quarter-pound hamburgers every week for a year.” Jennings also pointed to a Nov. 27 report by Eliza Barclay on National Public Radio that quoted Jean Schwab, a senior analyst in the waste division of EPA.  “Food waste is huge,” said Schwab.  “Food waste is now the number one material that goes into landfills and incinerators.”  In the same story NPR reported that about three cents of every dollar consumers spend on food away from home ends up in the trash.

A statement from the newest coalition of biofuels advocates, Fuels America, discussed the benefits American consumers receive from renewable fuels. “An Iowa State University study found that the average consumer saved $1.09 per gallon in 2011 because of ethanol—that’s a lot of trips to the drive-thru,” the Fuels America coalition argued. “The RFS also reduces the amount of fuel we need to import.  Americans saved $50 billion on imported fuel costs last year.”

 The RFS is America’s sole policy for producing alternatives to oil, Fuels America argued. “And even the NCCR report admits that it is working, calling the RFS the ‘key policy encouraging increased ethanol production over the last decade.’ The NCCR is trying to create a false distinction between corn ethanol and advanced renewable fuel. Both are integral components of an industry that is creating a more energy independent America, lowering prices at the pump, and creating good paying jobs for Americans.”