Costs Limit Food for Poor Children

Rising prices, shrinking rebates force federal diet-supplement program to reduce its recipients. `DOUBLE WHAMMY'

THE golden child of federal aid programs for the poor is going hungry. Hit by food-price increases and shrinking rebates from infant-formula manufacturers, the Special Supplemental Food Program for Women, Infants, and Children (WIC) is struggling to make ends meet.

Established in 1972, WIC has provided nutritious supplemental foods to low-income pregnant and postpartum women, as well as to infants and children through age four who have special nutrition needs. Funded by federal grants and administered at the state level, the program is currently capable of serving only about 50 percent of the 4.5 million eligible nationwide, according to the National Association of WIC Directors.

``We got the double whammy - increases in food prices and reduced infant-formula rebates,'' says Richard Blount, Missouri state WIC director.

According to the United States Agriculture Department, food prices rose 5 to 7 percent during the first six months of fiscal year 1990. This led to price increases in the monthly food package that WIC allots to each program participant.

Because the program has a fixed annual budget, WIC agencies across the country were forced to cut participation rolls.

``By the end of the year, we will have cut 240,000 participants'' nationwide, says Dennis Bach, president of the National Association of WIC Directors.

In an effort to soften the immediate impact of food-price increases, President Bush signed in June a bill allowing states to borrow up to 3 percent from next year's funds. Only a few states have taken advantage of this plan; most do not want to deplete next year's funds.

Far more damaging to the WIC program than the food price increases, however, has been a reduction in rebates that infant-formula manufacturers grant in contracts with state WIC agencies.

The WIC program is wedded closely to the infant-formula industry.

New Hampshire WIC director Robin McBrearty points out that ``one-third of the WIC budget goes to formula.''

Testifying before a Senate Antitrust Subcommittee hearing last spring, Robert Greenstein, executive director of the Center for Budget and Policy Priorities, said that ``from December 1979 to December 1989, the wholesale prices charged by [Mead Johnson, Ross Laboratories, and Wyeth Laboratories] for milk-based infant formula increased at least 145 percent. During the same period ... overall food prices rose 51 percent.''

Seeking to soften the impact of rapidly rising formula prices, states sought rebate contracts with formula producers. Companies placed rebate bids, and in 1987, states entered into either sole-source or multi-source ``open market'' contracts.

Competing for contracts, companies offered rebates as high as $1.40 per 13-ounce can of formula. The states use the rebates to pay for additional cases.

The cost-containment benefits were so substantial that Congress passed legislation last year mandating states to seek sole-source contracts with manufacturers.

Now, 15 states, including Massachusetts, fund more than 20 percent of their WIC programs with rebate revenues. Four state programs rely on rebate revenues for more than 30 percent of program costs. The congressional mandate, however, has largely eliminated competition. As contracts have come up for renewal in the past six months, companies have lowered the rebate.

``It appears that a pattern is forming,'' Mr. Bach explains. ``Formula companies are driving down the rebate. Last summer the average was $1.40, this summer it is 75 cents.'' The Federal Trade Commission is looking into the matter.

The decrease will hit WIC hard. ``We're going to be losing a lot of money,'' says Martin Brown, Nevada WIC director. Rebate cuts under the new contracts starting Oct. 1 will cost Nevada ``45 percent of our present rebate.'' Mr. Brown estimates his state will lose $800,000 and will have to cut another 1,500 cases.

Responding to claims by the Center for Budget and Policy Priorities, a Washington, D.C., public-policy research organization, that the three formula companies are abusing the market that WIC provides, a spokesman for Wyeth Laboratories referred to a letter the company sent to Rep. Ron Wyden (D) of Oregon three weeks ago. The letter reads, in part: ``Wyeth-Ayerst has never stated that it intends to reduce its rebates. Rather, Wyeth-Ayerst will continue to evaluate each [state] bid request and to determine independently whether and how much it is able to bid.''

The extent to which WIC can reinstate the cases lost to food-price increases and reduced formula rebates depends on Congress, which returns to work next week. The House has passed a bill giving WIC a $139 million increase over current services for in fiscal 1991. Still pending is a Senate proposal for $150 million.