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National Restaurant Association - Ethanol could fuel debate as corn production declines

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Ethanol could fuel debate as corn production declines

As drought in the Midwest continues to hurt corn crop conditions and the amount of corn available for food consumption declines, the question of whether Congress should reduce ethanol mandates could become a hot-potato issue when it returns from recess in September, commodities expert John Barone said.

Hard hit this summer by the extreme weather, the corn crop, a key component of the U.S. food supply and integral commodity for the foodservice industry, is "an official disaster," said Barone, CEO of Fairfield, N.J.-based Market Vision Inc.

With the U.S. Department of Agriculture confirming last week that corn yields dropped to 123.4 bushels per acre from pre-drought levels of 166 bushels per acre, and with production cuts of 2.2 billion bushels, "the situation is even worse than everyone thought," he said.

He said there's been a significant decline in corn production that will negatively impact the food supply and foodservice businesses. At the same time, he noted that nearly 42 percent of the crop has been pegged for the production of ethanol. That quota, he said, would fulfill the renewable fuel standards the federal government has set.

According to Barone, approximately 4.5 million of a total of 10.8 million bushels of corn is expected to be used for ethanol production this year.

Barone indicated that the potential debate in Congress could focus on why so much of the crop would go toward ethanol production when the shortage is jeopardizing the food supply.

"The big issue at this point is whether Congress will do anything about the situation," he said. "We have ethanol mandates in place and it is written into law that Congress can reduce those mandates during a crisis. This year's corn crop really qualifies as a crisis."

The USDA, in its agricultural weather and drought update on Aug. 14, rated the condition of 51 percent of the corn crop as poor to very poor.

The National Restaurant Association last year supported Congress' repeal of subsidies on corn-based ethanol, saying the tax credits distorted the market and diverted resources away from the food supply, which affects food prices.

According to the NRA, food costs represent about 33 cents of every dollar in restaurant sales.

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