Tyson Foods supports the development and use of renewable fuels as a way to help reduce U.S. dependence on foreign oil. However, public policy should not promote the production of certain renewable fuels, particularly corn-derived ethanol, at the expense of our company, our customers, or the U.S. consumer. Corn and soybean costs have a significant impact on our business and subsequently food costs. In fiscal year 2012, corn, soybean meal, and other feed ingredients represented 69 percent of the cost of growing a live chicken. Corn and soybean meal are also significant feed components for cattle and hogs, and these costs have significant impact on the business of the independent cattle and hog producers who supply us with market hogs and finished cattle.

In 2005, and again in 2007, legislation was enacted that mandated the use of specific volumes of renewable fuels. We believe these mandates, which had the most immediate impact on the production of corn ethanol, were a significant factor in both a sharp rise in corn prices and increasing volatility in the agricultural markets. By mid-2008, our costs for feeding corn into our broiler operations had doubled since July 2006 from $2.90 per bushel to nearly $6.00 per bushel. In fiscal year 2011, we absorbed $675 million in increased grain costs over fiscal year 2010. These increases in input costs, resulting from government policies pitting food production against fuel production, directly threaten our company's profitability, particularly our chicken business. Currently, about 40 percent of the U.S. corn crop is diverted to the production of ethanol due to a federal mandate. We do not believe this is a sustainable situation.

The summer of 2012 saw one of the worst droughts in the corn-belt in the last half century. Expected corn yields were sharply reduced and corn prices spiked. Within weeks, many Family Farmers with cattle or pigs were forced to sell their livestock because they couldn’t afford to feed them. Food processors, particularly those of us in the poultry industry, saw our profitability threatened. Ultimately, consumers will be negatively impacted through higher prices for protein. This circumstance again highlights the problem with the federal ethanol policy. With the support of many stakeholders including our company, a number of state governors petitioned the Environmental Protection Agency for a temporary waiver of the corn ethanol mandate. On November 16, 2012, the Environmental Protection Agency announced that it would not make any adjustments to the mandate because its analysis showed that doing so would have very little impact on corn prices and further that keeping the mandate in place would not cause severe harm to a state, a region or the United States.

Moving forward, we believe the corn ethanol mandate should be reevaluated by the Congress and consideration should be given to phasing out or eliminating the mandate for corn ethanol. At the very least, the program should be modified to allow for timely reductions in the mandate when corn stocks are at critically low levels. Federal renewable fuel policies should focus on next-generation renewable fuels that do not rely on food-based feedstocks. This policy focus is good for the country and for our company's long-term sustainability.

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