Food-to-Fuel Mandate Harms Chicken Industry As Corn Prices Soar, NCC Says

NCC Supplemental Comment on RFS Waiver Petition – PDF Document (99KB)

The nation’s food-to-fuel mandate is causing severe harm to chicken producers, a situation that will get even worse unless the mandate is waived, the National Chicken Council said in comments filed with the Environmental Protection Agency today.

The mandate for 9 billion gallons of corn-based ethanol in 2008 is driving up the cost of corn even while prospects for this year’s harvest continue to dim because of flooding in the Midwest, NCC said in comments supporting the waiver request by Texas Governor Rick Perry.

Only 57 percent of the corn crop is considered to be in “good” or “excellent” condition, down from 70 percent at this time last year, NCC noted, not even considering the recent flood damage in the Midwest. The U.S. Department of Agriculture will not publish a full assessment of flood damage until August.

Maintaining the mandate even while the corn supply is shrinking will only drive up the cost of corn for traditional users such as meat and poultry producers, NCC said.

“The harm to meat and poultry producers is already severe and will only get worse if the mandate is not waived,” NCC said in its comments.

The damage is not limited to companies, the Council said, pointing to a study by economist Bill Lapp estimating that food prices will rise in reaction to higher input costs. He estimated that milk would rise 81%, eggs 84%, pork 86%, chicken 80% and beef 79%, based on expected food prices in the period 2008-12 to actual prices in the period 2002-2006.

“It is almost inconceivable to us that the United States government would want to be associated with 80 percent increases in the price of common food items over that period of time, but this is the direction in which the ethanol mandate is leading the country,” NCC President George Watts said in a letter to the EPA. “Prompt waiver of the ethanol mandate can help break the cycle that is currently driving the cost of feedgrains to unprecedented highs.”

Today’s comments by NCC were a supplement to a statement of support for the waiver filed by the organization on June 13. Those comments noted that the price of corn has skyrocketed since 2006, when the RFS became a major factor in the market. Corn traded at about $2.22 per bushel on major exchanges in August 2006 but rose to the $3.40 range by April 2007. When the House of Representatives passed an energy bill nearly doubling the RFS, or ethanol mandate, in December 2007, the price of corn promptly shot up and hasn’t come down, Watts noted. Corn is now trading over $7 a bushel, the highest level ever reached.

Broiler chicken companies bought 1.3 billion bushels of corn in 2007 and the meal from about 515 million bushels of soybeans, which have also become more expensive in tandem with corn, Watts said. The added cost to the companies from skyrocketing corn prices since October 2006 has been more than $5 billion, he said.

“Reduction of the RFS for 2008 would provide some relief by reducing the guaranteed market for ethanol to be added to motor fuel,” Watts wrote. “In such a market, corn would no doubt have considerable value as a source of fuel. However, the market, and not the government through mandate, would sort out the conflicting demands for corn.”

The National Chicken Council is the trade association based in Washington, D.C., for the broiler chicken production, processing and marketing industry. Companies with approximately 95 percent of chicken production in the United States are members.

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