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Picking Up the Tab: Chain Restaurants Impacted by RFS Ethanol Mandate

Mark Green

Mark Green
Posted November 1, 2013

Last year the National Council of Chain Restaurants (NCCR), the country’s leading organization exclusively representing chain restaurant companies, released a PwC report that detailed the impact of mandates under the Renewable Fuel Standard (RFS) for ever-increasing corn ethanol use in fuel. The report estimated that by 2015 the RFS mandate would increase total costs for chain restaurant owners by up to $3.2 billion per year for every year the RFS remains in effect.  From the PwC report:

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.

More from NCCR and others in the food-for-fuel discussion resulting from the RFS’ ethanol mandates:

U.S. policy on biofuels, and on corn ethanol in particular, is a widely-recognized contributor to food price inflation. Experts from across the political spectrum now recognize this fact, and many are now calling for an end to Federal subsidies and supports for the corn ethanol industry. Although NCCR continues to support incentives for advanced biofuels, such as cellulosic and others that hold promise for a future of greater U.S. energy independence, we oppose continuation of subsidies and supports for the mature corn ethanol industry. – NCCR

"Through years of promoting ethanol as a solution to America's energy issues, Congress has unknowingly worked to increase commodity prices on retailers throughout the supply chain. These subsidies have artificially increased the price of corn, which in turn has driven up costs for restaurants and the customers they serve." - Rob Green, NCCR executive director

We estimate the impact of the 2015 RFS mandates at 2011 levels of food purchases under two scenarios … For the average quick service restaurant, these input cost increases are the equivalent to $18,190 per restaurant in the first scenario and $2,894 per restaurant in the second scenario. For the average full service restaurant, the cost increases are $17,195 and $2,736 per restaurant, respectively. – PwC report for NCCR

“Ethanol diverts a significant share of the US corn crop each year. And, by doing so, it makes corn prices higher than they otherwise would be.” – University of Missouri economist Pat Westhoff, via VOA News

“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. 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.” – Rob Green, NCCR

“Chain restaurants aren’t all mega-corporations. 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. This mandate is costing me $20,000 to $30,000 per restaurant. It is blatantly unfair and we urge Congress to repeal it.” – Ed Anderson, Wendy’s franchise owner and NCCR member

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.