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Tuesday, May 19, 2015
Wall Street Journal Op-ed "Paying for Ethanol at the Pump and on the Plate"
What do a franchise owner of four chain restaurants in Virginia, a food service distributor in Ohio and a poultry farmer in Kentucky have in common? They are all small-business owners who work in local communities and help Americans put food on the table.
But they have also all felt the failure of the federal corn-ethanol mandate, known as the Renewable Fuel Standard. Congress doesn’t agree on much lately—but ending a failed policy that stymies small businesses, hurts the environment and increases food prices should be a bipartisan priority.
The federal corn ethanol mandate has caused price volatility for many common food commodities.PHOTO: BLOOMBERG NEWS
Since the RFS was implemented in 2005, costs of vital food commodities, including corn, grains and oilseeds, poultry, meat, eggs and dairy, have risen dramatically. Here’s one major reason: The federal government’s corn-ethanol mandate requires that a percentage of the nation’s corn crop be blended into gasoline each year as ethanol. Every year the percentage
required increases, diverting more of the nation’s corn supply into ethanol fuel. This harms the broader U.S. economy.
Before it hit consumers so hard, the federal corn-ethanol mandate caused higher feed costs for poultry producers, cattle feeders, dairy farmers and others in the food chain. While food costs have always fluctuated due to unforeseeable factors like the weather, the demand artificially created by the RFS has resulted in a significant increase in volatility, which has left prices higher.
Consider: Between 1973 and 2007, corn prices averaged $2.39 a bushel, according to the U.S. Agriculture Department. The average price of corn jumped more than 110% between 2008 and 2014, to $5.04 a bushel. Even though corn prices have recently declined thanks to fabulous weather that produced two consecutive bumper crops, prices are still more than 59% higher than the historical average. Prices could surge even higher if the U.S. experiences anything less than ideal weather.
The resulting increases in feed costs have also affected the American production of beef, pork and chicken, which had increased consistently over the past 30 years but has now leveled off due to the higher cost of feed. As a result, a 2012 study by Pricewaterhouse Coopers estimates that the RFS costs chain restaurants $3.2 billion every year in increased food commodity costs.
Then there are restaurants. Wholesale food prices have outpaced the consumer price index by more than a full percentage point since the implementation of the RFS. In many instances, especially in the restaurant sector, small business owners are not able to pass on higher retail prices to consumers because of market competition—a concept that the corn-ethanol industry is unfamiliar with thanks to a government quota.
As if this were not enough, ethanol production has contributed to global food scarcity and hunger. No country exports more corn than the U.S., but about 40% is ending up in gas tanks, not on the world market. So much corn has been blended into gasoline that the higher percentage levels routinely render boat engines, motorcycles, chain saws and older automobiles inoperable.
Fortunately, lawmakers in Congress see the chicken producer, the food service distributor, the restaurant owner and others in the food chain for what they are: major contributors to the U.S. economy. Legislation has been introduced in both the House andthe Senate this year to repeal the RFS corn-ethanol mandate, with broad bipartisan support. Congress should take up this legislation and send it to the president’s desk.
The food industry isn’t anti-ethanol. Repealing the fuel standard would simply require the ethanol industry to compete in the marketplace just like restaurants, food distributors and chicken farmers do every day—without a government mandate guaranteeing secure and growing sales.
Mr. Brown is the president of the National Chicken Council. Mr. Green is the executive director of the National Council of Chain Restaurants.