US agri-economist urges Congress on Renewable Fuel Standard reform

February 8, 2013

The president of FarmEcon presented his remarks on behalf of the National Chicken Council and National Turkey Federation, urging the Congress on reforming the Renewable Fuel Standard (RFS).

"The Renewable Fuel Standard (RFS) is broken, but Congress can fix the rule by acting now and opening an inclusive, robust debate that leads to extensive reform," said Thomas Elam, president of FarmEcon, LLC, at a media briefing with approximately 50 reporters. Elam presented his remarks on behalf of the National Chicken Council and National Turkey Federation.

Congress in 2005 enacted the first RFS which mandated levels of ethanolto be blended with gasoline. In 2007 that ethanol mandate was expanded, and biodiesel was added. Elam noted in his remarks that 2007 was a game changer, referring to it as a "Hail Mary."

"We did not then, and still do not today, have the volume of agricultural raw materials, or the required cellulosic ethanol technology, to meet the 2007 RFS goals," he said. "Nearly six years later, it''s still not a commercial reality. The courts just a few weeks ago ruled this to be the case, as well."

Corn production has declined while RFS mandates have increased, Elam said while discussing the past three years. Smaller supplies have resulted in more than doubling of the most important input cost to poultry production-feed. "Since RFS'' enactment in 2005, annual feed costs for chicken producers have risen US$8.8 billion and turkey by US$1.9 billion," he added.

Cumulative additional costs for broilers and turkeys since 2006 total more than US$42 billion. Poultry producers are not the only ones being hit with added costs, though. Elam said these costs are passed on to consumers in the form of higher prices.

"USDA''s average wholesale broiler meat prices leapt from US$0.68 in 2005 to a record high US$0.91 in December, 2012-a 35% increase. Turkey meat soared from US$0.79 in 2005 to a record high of US$1.20 a few months ago. And it''s not just poultry that costs more. A variety of food products that depend heavily on corn feed are also more expensive. It''s safe to say RFS is hitting consumers, poultry producers, and farmers squarely in the pocketbook."

Another unintended consequence from RFS is bankruptcy for some. Elam noted that since 2008, eight major poultry producers filed for bankruptcy, and last year, the poultry industry''s contract farmers-this includes many small family farms that raise live birds- lost about US$500 million in potential income. "This loss is attributable to chicken and turkey production that did not happen because of higher feed costs," he explained.

"We need to inject a dose of reality into RFS, especially when corn supplies are limited due to historically low inventories," Elam continued.