Published on Sunday, June 6, 2004 by the New York Times
Selling to Poor, Stores Bill U.S. for Top Prices
by Robert Pear
WASHINGTON — Federal and state officials are expressing alarm about the proliferation of food stores that cater to low-income people but charge more than other grocery stores, thus driving up the cost of a major federal nutrition program.
The program, the Special Supplemental Nutrition Program for Women, Infants and Children, or W.I.C., helps feed 7.7 million people each month by providing vouchers for infant formula, juice, eggs, milk, cheese, cereal and dried beans. Now a growing number of stores are selling only to W.I.C. families, accepting only the government vouchers, not cash, for payment.
About 47 percent of all babies born in the United States each year participate in the program.
"The rise in W.I.C.-only stores is a fairly recent phenomenon," said Eric M. Bost, under secretary of the Agriculture Department, which runs the program. Analysis of food costs in California and Texas shows that "W.I.C.-only stores in these states have higher prices, on average, than other authorized retailers," Mr. Bost said.
The stores have found a niche in the market that Congress did not anticipate. Proprietors said the stores had become popular because they offer convenient locations and superior service.
Healthy Kids, a "one-stop W.I.C. shop" in Virginia Beach, is tucked into a small shopping center, next to a state health clinic that issues W.I.C. vouchers. Every item in the store meets the specification of the program, said the manager, Tracy Wynne. By contrast, Ms. Wynne said, at supermarkets, "it's often a hassle finding the right products and dealing with cashiers."
"I wish they had these stores 10 years ago when I was on W.I.C.," she said.
The W.I.C. families are not particularly sensitive to shelf prices because their vouchers buy a specific food package, regardless of the amount charged to state agencies, which administer the program with federal money.
State officials say the prices at W.I.C. specialty stores are typically 10 percent to 20 percent higher than those at supermarkets and other retail grocers.
Linnea E. Sallack, director of the W.I.C. program in the California Department of Health Services, said: "We consistently find that prices charged in W.I.C.-only stores are higher, on average, than in other stores. If food prices are high, for whatever reason, it means that our federal grant cannot go as far and cannot serve as many people."
Ms. Sallack said California had 659 W.I.C.-only stores, accounting for 16 percent of all stores in the state's program. But they account for more than 37 percent of W.I.C. business in California, she said.
The increase in the specialty stores coincides with a rise in food prices, which was already squeezing the budget for the program.
The producer price index for dairy products increased 10.4 percent in April, the biggest monthly rise since July 1946, said Brian C. Catron, an economist at the federal Bureau of Labor Statistics. James J. Miller, a dairy economist at the Agriculture Department, said the average farm price for milk reached a record high in May, $20.30 for 100 pounds of raw milk, up from $11 a year earlier.
Donna T. Seward, director of the W.I.C. program in Virginia, said the prices at W.I.C. stores "may be as much as double the prices at Wal-Mart, Food Lion or Kroger."
Ms. Seward said that some of the specialty stores bought food at retail supermarkets and resold it, at higher prices, to people in the program. The higher costs are passed on to the federal Treasury, which finances the program with money appropriated by Congress, $4.6 billion this year.
Congress is considering legislation to limit prices at W.I.C.-only stores, but it does not want to drive them out of the program.
Senator Tom Harkin of Iowa, the senior Democrat on the Senate Agriculture Committee, said the W.I.C. stores posed "a growing threat" to efforts to control the cost of the program. Senator Robert F. Bennett, Republican of Utah and chairman of the subcommittee responsible for agriculture appropriations, said, "It concerns us greatly that many of these vendors charge prices well above other stores."
In recent weeks, the W.I.C.-only stores have retained a team of lobbyists to press their case on Capitol Hill. The lobbyists include John W. Bode, an assistant secretary of agriculture in the Reagan administration, and Mickey Ibarra, a White House aide to President Bill Clinton. The Latino Coalition, a Hispanic business group that supports the W.I.C. stores, said it had enlisted Cassidy & Associates, a top lobbying firm, to arrange a meeting on Capitol Hill.
Mr. Bode said the W.I.C.-only stores were "modestly more expensive than large supermarkets, in part because they have higher product costs and cannot negotiate directly with manufacturers, as major retailers like Wal-Mart and Safeway do."
Customers of W.I.C.-only stores say they avoid the possible stigma and embarrassment of using W.I.C. vouchers at a supermarket. Filling out vouchers and separating W.I.C. items from the rest of a customer's order can slow the checkout line in a regular grocery store.
Latoya R. Varnedoe of Oakland, Calif., a 27-year-old mother of four, said she had had excellent experiences at a W.I.C.-only store. "It's fabulous," said Ms. Varnedoe, who works as a mail carrier. "It has every item covered by the W.I.C. coupons. At big stores, they may run out of apple juice or grape juice or other items."
In Arkansas, Roger C. Chinn, assistant director of the W.I.C. program, said the state had 42 W.I.C. specialty stores, accounting for 8 percent of all stores in the program, but 22 percent of sales.
A study commissioned by the Texas Health Department concluded, "W.I.C.-only stores tend to be among the most expensive, in Texas and nationally."
In California, a similar study found that for the most common food package, which provides milk, eggs and cheese to nearly one million people each month, the specialty stores charged $20.28, or 16 percent more than other stores.
Arthur W. Burger, executive vice president of Burger, Carroll & Associates, which did the studies, said some specialty stores were "gouging the government by marking up prices to levels much higher than those charged by mainstream grocery stores."
Under federal rules, states set limits on how much they pay for each W.I.C. food item. Those limits must be high enough to ensure that low-income people have access to benefits in isolated rural areas. State officials said that W.I.C.-only stores were much more likely to charge the maximum allowable price. Large retailers set prices well below that level so they can attract and keep other customers.
Douglas A. Greenaway, executive director of the National W.I.C. Association, which represents state and local agencies providing nutrition services, said: "Normal market forces do not operate in W.I.C.-only stores because they do little if any business with price-sensitive customers. When W.I.C.-only stores charge the government more than other grocers, fewer people can be served."
About four million births occur each year in the United States. W.I.C. serves nearly two million infants in the first year of life, plus 5.7 million pregnant women, new mothers and children age 1 to 4. Family income may not exceed 185 percent of the poverty level. For a family of three, the maximum income is $28,990 a year.
Michael A. Amiri, chief executive of Nutricion Fundamental, which runs 32 specialty stores in California, said: "We are willing to discuss a mechanism for cost control, but it must not discriminate against W.I.C.-only stores. I agree that our prices should be similar to those at grocery stores of similar size in similar locations."
To attract customers, the specialty stores sometimes offer free transportation and gifts including baby strollers, bicycles, diapers, pots and pans, baby clothes and soap powder.
Laurie True, executive director of the California W.I.C. Association, a nonprofit group representing local programs, said, "W.I.C. stores sometimes send employees to hospitals to offer gifts, make a sales pitch and sign up new mothers as customers."
Some lawmakers want to ban such incentives, but store owners are resisting.
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