Proposed SNAP cuts will be felt throughout the food sector
June 18, 2013
As the farm bill makes its way through the legislative process it is becoming clearer that the Supplemental Nutrition Assistance Program may see its funding reduced. How much of a reduction will depend on negotiations that will take place between the Senate and the House. Many of the most vulnerable individuals in the U.S. population are going to be squeezed if funding for the program is reduced. Further up the chain, food and beverage processors as well as retailers will feel the effects of the cuts.
The U.S. Senate passed its version of the farm bill on June 10. The Senate legislation reduces the SNAP program by an estimated $4 billion over 10 years. The House is considering a much steeper reduction — $21 billion over the next decade. The House is expected to debate its version of the farm bill the week of June 17, and the two branches of the government are expected to meet in conference to discuss the legislation during the summer.
Approximately 46 million Americans currently receive SNAP benefits. As the U.S. economy has slowly recovered from the economic recession that began in 2008, the number of people receiving assistance benefits has grown. The program is designed for the exclusive purchase of foodstuffs such as bread, cereals, fruits, vegetables, meats and dairy. Any funding reductions will ripple throughout the supply chain.
From 2007 through 2010 the SNAP program pushed more than $70 billion into the entire grocery retail sector, according to the U.S. Department of Agriculture’s Economic Research Service. In 2012, supercenters and traditional grocery stores accounted for more than $60 billion in SNAP benefit redemption, accounting for approximately 82% of all redemptions.
While much of the media attention regarding potential program reductions is rightly on those individuals that may lose benefits, food and beverage executives must consider the ramifications as well.
A report published by the market research firm the NPD Group found that consumers participating in SNAP and the Women, Infants and Children program purchased approximately 25% of foodstuffs from supercenters. The figure is 15% for other consumers, according to NPD.
The research firm noted that 29% of shoppers participating in assistance programs visit the grocery store every two weeks or less, while other consumers shop more frequently, which is considered a function of when the assistance program debit cards are issued. These shopping patterns are reflected in the timing of food company and retailer promotional programs.
The NPD Group study added that nutrition assistance recipients have a higher propensity to skip meals compared to non-participants. These may be considered lost opportunities for the food industry.
The consequences of nutrition assistance program reductions will be widespread. Consumers in the United States that are on the edge of poverty and participate in nutrition assistance programs will be the group hardest hit. They may find themselves with little or no access to benefits and challenged to source foodstuffs that will allow them to remain food secure.
Such a situation will be felt elsewhere as retailers adjust to the reduction in foot traffic and, in turn, adjust the stock-keeping units on store shelves. Food companies also will have to adjust to the reduced demand.
Darren Seifer, a food and beverage industry analyst who wrote the NPD Group study, said that food marketers would be wise to understand the eating habits of SNAP/WIC recipients since they are a large customer base.
“Using messaging and merchandising that is relevant, aligning in-store strategies with the card refill cycles, and providing nutrition education are among the ways in which marketers can yield the best results when connecting with these consumers,” he said.
Food marketers also would be wise to understand how federal funding reductions may affect their marketing efforts before the SNAP cuts go into effect, because the reductions will be felt throughout the supply chain.