Nutrition Program's Tempest In A Cereal Bowl
By Sue Kirchhoff, CQ Staff Writer
Lawmakers must resolve some vexing questions as they rewrite national nutrition programs: where to find funding, how to weed out fraud -- and whether poor women and children have a federal right to Cheerios.
General Mills Inc., which posed the Cheerios question, has a lot riding on the answer. The Minneapolis-based food giant is pushing Congress to slow cost-cutting that has pinched sales of its cereals under the $4 billion-a-year federal Women, Infants and Children (WIC) program.
The company is worried because some states are barring WIC participants from using program vouchers to buy big brand-name products. To contain costs and serve more people under the program, which bought $387 million worth of cereal in 1996, some states are mandating cheaper store brands.
WIC provides federally funded vouchers for infant formula, cereal and other nutritious products to supplement the diets of about 7.3 million low-income pregnant women, infants and children up to age 5. It further provides health and education aid.
Industry lobbyists had hoped to prod Congress into getting more involved in WIC purchasing, a role normally reserved for states, which run the program. But politicians in both parties are loath to tinker with a program that is an unvarnished success. So, processors instead may get only a congressionally ordered study of whether giving priority to store brands harms WIC recipients.
Industry officials paint the issue as one of choice, saying states that bar their products from WIC eligibility deprive recipients of products they want.
"Our industry is concerned about the impact on women and children who don't have access to choice," said Anna Matz, manager of public policy communications for the Grocery Manufacturers of America, a Washington group that represents processors.
There are broader stakes, however. Analysts say grocer labels are already edging national brands off supermarket shelves. Furthermore, reaching WIC children helps establish tastes and preferences that last well into adulthood.
"It's one more battle in the ongoing fight between national brands and retailers over the share of the market private brands will have," said Brian Sharoff, president of the Private Label Manufacturers Association of New York, which represents private brand makers.
Cereal makers are not the only ones seeking to protect their bottom line. Mead Johnson and Co. has been lobbying for a policy that would alter the way states treat its lactose-free infant formula under WIC. Any change could have major repercussions, since WIC serves half of U.S. infants and accounts for half of formula sales.
The lobbying comes as tight budgets are prompting greater scrutiny of WIC. A controversial House Appropriations Committee study completed in March found greater-than-suspected fraud in the program, giving rise to calls for tougher rules. Advocates for the poor say the study overstates the program's troubles.
"What I have not been able to determine yet is: Are the problems we have enough to change a successful system, or do we need to just go in and make some minor corrections?" said Sen. Tom Harkin, D-Iowa.
The House Education and the Workforce Subcommittee on Early Childhood, Youth and Families is set to address the fraud issues in coming weeks when it marks up legislation to reauthorize WIC. The Senate Agriculture Committee may follow in June. Despite the controversy, House lawmakers expect bipartisan compromise.
Last year, the House Appropriations Committee initially balked at a Clinton administration request for $76 million in the fiscal 1997 supplemental spending bill (PL 105-118) to meet a possible shortfall. The panel's March study said that the program aided hundreds of thousands of ineligible people and that retail fraud was rampant.
Advocates for the poor said the study misinterpreted data. Even those who do not like the study said it may increase pressure on lawmakers to pass needed anti-fraud provisions.
A Mission, a Market
WIC is designed to be a supplemental, rather than a primary, aid program. It provides individuals earning less than 185 percent of the federal poverty level with temporary nutrition aid through vouchers worth about $30 per month, redeemable in stores.
"We're not giving away food. It's the carrot to get people into the program, the opportunity to make referrals to prenatal, pediatric [and] nutrition screening," said Douglas A. Greenaway, executive director of the National Association of WIC Directors.
For infant formula makers, it is an indispensible market. For companies such as General Mills, it is a long-term investment. Not only are WIC children hungry little customers, but they grow into adult consumers who buy cereal and other goods for themselves and their families.
WIC also helps determine grocery shelf space. That is why General Mills, which derives about 3 percent of it annual cereal sales from WIC, has fought so hard to protect its share that competitors complain of the "Women, Infants and Cheerios" program.
And why Kellogg Co. has tried unsuccessfully for years to get its Raisin Bran included in WIC. The problem? The cereal has more sugar than the program's nutrition guidelines allow.
In a nod to General Mills, the House bill is expected to include a study on the impact of WIC cost containment. Senate Agriculture Committee Chairman Richard G. Lugar, R-Ind., might follow suit.
The General Accounting Office said May 11 that nearly 40 states restrict prices grocers may charge, and 10 are pushing for new product discounts. California now has fruit juice rebates. There is also the move to store brands.
General Mills argues that many children in Cheerio-free WIC programs refuse to eat store brands that, it maintains, have less taste. Faced with finicky eaters, some mothers refuse to redeem WIC vouchers, the company says. It also argues that state requirements that WIC programs use only store brands would hurt recipients in inner cities or rural areas where such products may not be available.
"It [the study] will be critically important information for all of the parties involved," said Robert Bird, lobbyist for General Mills. Others cry foul. Oklahoma in 1997 barred nationally promoted cereals in favor of store brands, saving $147,000 per month.
"I've been feeling the pressure," said Wayne R. Anderson, vendor division director for the Oklahoma WIC program. "They [General Mills] visited some neighboring states here . . . trying to discredit what we're doing."
Texas in 1992 barred Cheerios and some other, though not all, brand-name cereals. The state reinstated Cheerios in 1995 in part because WIC customers requested it. Participants can now choose between national and store brand cereals. Nearly 90 percent select name brands such as Cheerios.
A study for General Mills said voucher redemptions fell 7 percent after Cheerios was pulled and climbed when it was put back in. State officials say the data was not so clear-cut.
Fighting Over Formulas
In another indication of the importance of the WIC market, Mead Johnson has been pressing lawmakers to change the way states evaluate bids for infant formula. Congressional action would pre-empt a pending USDA regulation on state purchasing that may not be as favorable to the company.
Despite using lobbyist John Bode, a former Agriculture assistant secretary for food and consumer service who once oversaw WIC, the company has had little success.
To control costs in their WIC programs, states run bidding systems, giving exclusive sales rights to the company with the lowest net price. State WIC agencies usually buy formula at prices 85 percent below wholesale because of "rebates," or discounts that companies offer in order to win contracts. Last year, the discounts saved $1.2 billion, allowing states to serve an additional 1.7 million participants.
Mead Johnson says the current system does not fairly reflect the potential savings to states from purchasing a special lactose-free, milk-based formula it began marketing several years ago.
About 3.5 percent of infants now use the company's Lactofree, fed to babies who cannot digest lactose, a sugar in milk. Mead Johnson and other manufacturers also produce soy-based alternatives to regular formula.
Mead Johnson's position is that if states want to receive Lactofree rebates, they have to give credit for them during bidding. It further wants states to assume that some percentage of infants will use Lactofree, regardless of which company wins the bid. That means that in evaluating competitors' bids, states would have to assume that some recipients would use their vouchers to buy Lactofree, for which the state would not receive a rebate, increasing its costs.
Three companies dominate the infant formula market -- Mead Johnson, Ross Laboratories and Carnation. Washington is not the only battleground. Mead Johnson is involved in four state lawsuits involving Lactofree.
Critics charge that since no other company makes Lactofree, such a policy would tilt the playing field toward Mead Johnson, which controls about 60 percent of the WIC market.
The plan's "most likely effects would be to enable Mead Johnson to take control over time of most or all of the WIC . . . market," said a memo from the Center on Budget and Policy Priorities, a liberal think tank.
Lawrence A. Levin, Mead Johnson vice president and senior counsel, said the company is seeking equity. "If you're providing bids for a school house and saying one company has to build the entire school house and the other . . . doesn't have to put on the roof, this is not equal."
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