Renewable Fuel Standard Costs Chain Restaurants Billions Annually

NCPA December 7, 2012

A new study conducted by PricewaterhouseCoopers (PwC) for the National Council of Chain Restaurants (NCCR) estimates the impact of the federal Renewable Fuel Standard (RFS) on the chain restaurant industry, says Marlo Lewis, a senior fellow at the Competitive Enterprise Institute.

·       First, PwC examined 11 public and private sector studies estimating the extent to which the RFS increases ethanol utilization beyond what would occur in a free market. Estimates range from an additional 1 billion gallons per year at the low end to an additional 6 billion gallons per year at the high end.

·       Second, PwC estimated the impacts of these RFS-driven increases in ethanol consumption on the demand for and price of corn and other agricultural commodities.

·       Lastly, PwC combined these price impact estimates with survey information on chain restaurant food commodity purchases.

Here are the results.

·       If the RFS in 2015 increases annual ethanol consumption by 6 billion gallons ("Scenario I"), quick service restaurants are projected to spend an additional $2.5 billion (10 percent of major food commodity spending) and full service restaurants an additional $691 million (8.9 percent). Costs at a typical restaurant increase by $18,190 in quick service restaurants and $17,195 in full service restaurants.

·       If the RFS in 2015 increases annual ethanol consumption by 1 billion gallons ("Scenario II"), quick service restaurants are projected to spend an additional $393 million per year (1.6 percent of major food commodity spending) and full service restaurants an additional $110 million (1.4 percent). Costs at a typical restaurant increase by $2,894 in quick service restaurants and $2,736 in full service restaurants.

Of course, it's not just the restaurants that will bear those costs. Their customers will pay higher prices too.

Source: Marlo Lewis, "Renewable Fuel Standard Costs Chain Restaurants $0.5 Billion to $3.2 Billion Annually," Golbalwarming.org, December 4, 2012. "Federal Ethanol Policies and Chain Restaurant Food Costs," PricewaterhouseCoopers, November 2012.