Renewable Fuel Standard Impacting Food Prices
The National Council of Chain Restaurants recently undertook a new initiative to address a growing concern in the industry — the high and rising cost of food commodities. As is so often the case in the trade association world, it began with member companies raising the issue as one of significant concern for their bottom lines. NCCR responded by quickly laying out a plan of action for its members, starting with the creation of a unique, cross-functional task force of member company executives from the supply chain and government affairs disciplines. The idea behind the NCCR Food Supply Chain Committee was to foster education between two corporate functions that hadn’t traditionally had much interaction. The result has been that both groups have a superior understanding of the issues involved and how the two corporate functions can, working together, better advance their company’s public policy interests — in this case, identifying and influencing federal policies that affect food commodity prices. After forming in mid-2011, the committee surveyed in earnest the landscape of issues that could potentially affect food commodity prices, with an eye toward those that are specifically impacted by federal public policy. Having culled a large and varied issue set down to a discrete and manageable number, committee members relied on NCCR staff to organize several meetings and conference calls with experts from academia and government so that committee members could hear first-hand from professionals in the field about various factors affecting food commodity prices. The committee soon identified federal public policies on biofuels as those most responsible for affecting food commodity prices for the industry — and the federal Renewable Fuel Standard (RFS) most specifically. The RFS is a 2006 federal mandate that requires oil companies to buy a certain amount of ethanol every year and blend it into the gasoline that is ultimately sold to consumers. Ethanol is made from corn, which is also the foundational ingredient in the U.S. food supply; in fact, corn is present in some 75 percent of food sold to U.S. consumers. Corn is also the primary ingredient in livestock feed, which makes its use as a fuel very expensive to farmers and ranchers and everyone else involved in the food supply chain, including chain restaurants. The RFS mandate has led to more than 40 percent of the nation’s annual corn crop being diverted to ethanol production, and several studies have established a positive correlation between the RFS and higher food prices. Although the NCCR Food Supply Chain Committee strongly suspected the RFS policy was a significant contributor to higher food commodity prices, it elected to enlist the expertise of an independent research firm to examine the impact and provide an objective analysis. That research is now complete, and not only has the link between the RFS and higher food commodity prices been firmly established, it is stronger and more impactful than most would imagine. NCCR has concluded, through objective, third-party research, that the RFS must change. Its effect on food commodity prices is a problem, not just for businesses involved in food service, but also for every American consumer and the broader economy, as food price inflation takes a bigger and bigger bite out of incomes. NCCR is committed to establishing a sustained program aimed at educating policymakers about the impact this policy is having on the chain restaurant industry, with the goal of changing the law to allow for a rational and predictable market-based framework for determining commodity costs, which will ultimately benefit America’s consumers and small businesses.