The fast food industry is playing fast and loose with the facts when it comes to the impact of the Renewable Fuel Standard (RFS) on food prices.
The National Council of Chain Restaurants (NCCR) is rolling out a campaign of scare tactics and half-truths. In both a study and a Wall Street Journal guest opinion piece, NCCR managed to avoid any discussion of what really drives food prices—energy costs.
“Clearly, Big Food and Big Oil are on the defensive. They lost in their bid for a waiver of the RFS, so now they are resorting to super-sized myths about the impact of the RFS on food prices. Every reasonable analysis of the factors influencing food prices has concluded that the cost of diesel fuel, gasoline, and other energy inputs is the major driver. This study conveniently avoids that issue,” said Bob Dinneen, president of the Renewable Fuels Association.
“The bottom line is the RFS is working. Renewable fuels have already displaced 10% of annual gasoline demand and dramatically lowered fuel costs for all Americans.”
Dinneen also pointed out that, contrary to 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.
The analysis released by NCCR relied in part on a study by Farm Econ that is now more than four years old and has been thoroughly debunked. When considering more recent studies, the NCCR analysis found the RFS would increase corn prices by no more than four percent in 2015. When that marginal increase in corn prices is worked through to the wholesale and retail levels, the impact on consumer food prices is almost indiscernible.
“It is important to mention that Price Waterhouse Cooper did no original analysis. They simply reviewed select studies – in one case, a four year old discredited analysis – while ignoring more recent peer-reviewed work that did not support the funder’s political position,” said Dinneen.
Curiously, the NCCR study chose not to include the findings of a recent analysis commissioned by the International Centre on Trade and Sustainable Development. That study 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 prices for beef, broiler meat, pork, and eggs would have been no different from 2005-2010 with or without the RFS.
Also contrary to the NCCR study’s claims about the effect of the RFS on prices for other crops, the ICTSD study showed 2009/10 prices for wheat and rice were higher by less than 1% because of the RFS, while soybean prices were 1.7% higher. Clearly the RFS is not affecting the prices for these crops in a noticeable way.
Facts worth noting
• Ethanol is not produced from the sweet corn that humans consume. It is made from field corn, which is used for livestock feed and industrial purposes.
• One-third of every bushel of grain used in the ethanol process is returned to the market as nutrient-dense livestock and poultry feed.
• Less than 3% of the global grain supply will be used by the U.S. ethanol industry in 2012.
• 39 million metric tons of animal feed were produced by ethanol plants in 2011. That’s 6,000 pounds of feed per beef cow at feedlots across the United States.
• 7 hamburgers per person worldwide could have been produced from the ethanol industry’s 2011 animal feed output. That is 50 billion hamburgers.
• Only 14 cents of every dollar spent on food is related to agricultural ingredients. The remaining 86 cents goes to energy, packaging, food processing and other costs.
• There is a near perfect correlation between U.N. food price index & World Crude Oil prices, highlighting the fact that energy costs drive food prices.
Specifics on recent food prices:
• Big Food complains that “food prices have spiked nearly 18% since 2005,” the year the first RFS was passed by Congress. That’s an average of just 2.57% per year, which is right in line with the 20-year average for annual food inflation, and far below food inflation rates from the 1970s and 1980s. Further, food prices since 2005 have advanced at a slower rate than general inflation. That’s hardly a “spike” in our book.
• Additionally, 2010 saw the lowest year-over-year food inflation in nearly 50 years. Meanwhile, the ethanol industry produced a record amount of fuel that year. In fact, the ethanol industry used more corn in 2010 than it will use in 2012.
• The food groups decry the 18% “spike” in food prices since 2005, but fail to mention the 55% increase in retail gasoline prices, the 60% increase in diesel prices, and the 68% increase in crude oil prices since 2005. If there was any truth to the myth that retail food prices have increased abnormally since 2005, it would be mostly because of surging energy prices. Every step in the food supply chain is affected by energy prices.