Recipient Organization
USDA/ERS
1800 M STREET NW
WASHINGTON,DC 20036
Performing Department
ECONOMIC RESEARCH SERVICE
Non Technical Summary
Using empirical data including voucher redemptions, voucher values, retail outlet types, and food stamp redemptions by outlet type, and prices of WIC foods, I will evaluate alternative vendor cost containment methods according to criteria specified in the Child Nutrition Reauthorization Act, 2004.
Animal Health Component
100%
Research Effort Categories
Basic
(N/A)
Applied
100%
Developmental
(N/A)
Goals / Objectives
Considerable controversy surrounds the impact of so-called WIC-only vendors (authorized stores having 50 percent or more of sales in WIC vouchers) participating in the WIC supplemental foods program. WIC-only stores attract participants by restricting items carried to only authorized WIC foods. A high degree of service geared towards the needs of participants, such as order-taking, multilingual staff, convenient locations, free merchandise, and often transportation to and from the store, are used as incentives to shop at WIC-only stores instead of other foodstores. In addition, most WIC-only stores are set up to redeem vouchersaitem prices may not be indicated--and they may not accept cash. As a result, WIC-only stores are isolated from the typical market forces that act to determine prices in the commercial retail food sector. Vouchers redeemed by WIC-only vendors are typically within 5 percent of the maximum value limit specified by the State agency. The
proliferation of WIC-only vendors in California, Texas, Oklahoma, and others, have contributed to higher program food costs in those States. Congress enacted legislation in 2004 that aims to contain vendor costs by requiring that WIC-only vendors prices not exceed a competitive norm, and that peer groups of authorized vendors be used to determine competitive prices. The overriding goal of the legislation is to provide additional vendor cost containment, such that WIC-only stores have a cost-neutral impact on agency food costs. The legislation also provides for Federal oversight of State plans regarding the new vendor cost-containment requirements. Currently, the Food and Nutrition Service is developing guidelines for State WIC agencies. Recent discussions with FNS staff revealed their need for guidance on standards for determining competitive prices, vendor peer group design, and the supporting rationale for these guidelines. In this priority research project, I will support FNS
policymaking on WIC vendor cost containment by examining the economic issues surrounding the determination of competitive markets, prices, and peer groups, and, using empirical data, assess the impact of alternative scenarios on State agency program costs. The overall objective is to analyze and compare existing and alternative vendor cost-containment methods that are consistent with requirements of the 2004 Child Nutrition Reauthorization Act. More specifically, the project will a) assess alternative methods for measuring the competitive price or voucher cost, b) assess the impact of alternative methods on WIC agency food costs, c) assess the impact of alternative methods on vendor classes, including WIC-only stores, and d) assess administrative complexity of alternative methods.
Project Methods
In order to support policymaking towards WIC vendor cost containment, a greater understanding is needed about the definition and nature of competition in retail food markets. I will review studies on defining retail food markets, market structure, price and non-price competition, retail foodstore channels, business models, and type of geographic markets. I will describe the retail food landscape and how it has changed over the past decade. Next, I will describe the nature of non-price competition that characterize so-called WIC-only vendors. From this review, I will develop a set of stylized facts that will serve to guide the development of alternative methods and measures used to identify retail food markets, determine competitive markets, prices, and peer group formation. I will apply these criteria to empirical data in the form of State administrative records, including voucher redemptions, voucher values, retail outlet types, and food stamp redemptions by
outlet type. The distribution of vouchers and voucher values across store types in a market area can be determined and compared with distributions of food sales and food stamp redemptions across stores. If voucher values are to be used as a proxy for item prices, the validity of this approach needs to be tested. An examination of more detailed administrative records, or comparisons with authorization/reauthorization vendor price surveys may be used to validate this concept. Item prices can also be obtained from store scanner data and household panel data maintained by ERS. As a potential indicator of competitive-priced vendors, it is also desirable to examine the relationship between Food Stamp and WIC redemptions, for those vendors jointly authorized, as suggested by Burger Carroll Associates. Program cost impacts of alternative vendor cost containment methods will be evaluated. As an example, with time series voucher redemption data, one could monitor the impact of changing
maximum value limits for individual vouchers and overall voucher redemptions. Using data provided by State agencies including California and Texas, I will simulate various alternative definitions of retail food markets and peer groups and the resulting competitive price measures to assess their impact on agency food costs. In turn, these results can be used to assess the impact on participation by WIC-only vendors. More detailed assessments of WIC-only store effects of cost containment will depend largely on available product and operating cost data. In order to evaluate alternative vendor cost containment methods, comparisons will be made on the basis of program cost effects, the economic justification and rationale for measuring competitive price or voucher value and peer group design, vendor management complexity, and the cost impact of WIC-only vendors. The results of this study will provide a sound economic and empirical framework for the development of State vendor
cost-containment guidelines for the Food and Nutrition Service.