Archive for August, 2011

Estimated $200 Billion Food Stamp Expenditure Reduction with Standard Weight Unit Price (SWUP) Cost Control

August 24, 2011

The motto for the Supplemental Nutrition Assistance Program (SNAP – a.k.a. Food Stamps) should be the standard reply I  give when asked what my favorite restaurant is: Cheap ‘n Filling.  Applying this philosophy, you could probably reduce the roughly $70 billion that the federal government spends annually on the program by $20 billion, for a ten year cost savings of $200 billion.

If you browse through the aisles and do a little comparison shopping at any grocery store, you get the definite impression that the SNAP program could feed twice as many people with half the money it currently spends.  From what I can determine, a root cause of many of the problems with the program, besides increased enrollment,  is not just spending or a lack revenues to support the program, but a lack of pricing control.  There seems to be little control of the cost of allowable items that food stamp recipients can purchase.

Pricing is the independent budget variable that drives the dependent variables of spending and revenues.  For example, you spend $3.50-$4.00 for a gallon of gasoline because that is the price at the pump, and you must have personal revenues (e.g. paycheck) that are sufficient to cover the cost.

STANDARD WEIGHT UNIT PRICE (SWUP) 

REDUCING FOOD STAMP EXPENDITURES BY 25% TO 50%.

Since food is sold by weight (e.g. cents/ounce), a straightforward way to control, and thereby reduce food stamp expenditures is to limit the amount of money that benefits recipients can spend for each ounce of food. Implement Standard Weight Unit Price (SWUP) as a cost and spending control method.  Determine the maximum amount of money for which food stamps can be used to purchase any food item.

A significant factor in food pricing is packaging.  Snack sized food packages cost a lot more than family sized packages to purchase the same weight of food.  Bottled water is a good example of this.  You can purchase a case of 24 bottles of water for $4 to $5.  Or, you can purchase 24 single bottles of the exact same water for $1 to $1.50 each, for a total of $24 to $36, or 5 to 10 times the cost of a 24 bottle case.

The following two questions then arise:

Q1.  Does the SNAP program allow food stamp recipients to basically spend whatever they want on any qualified food item?

Q2. Should food stamp recipients be allowed to spend whatever they want on any qualified food item, even if the retailer offers the same food for a cheaper cost (e.g., package size) in that same store?

There are two ways to implement SWUP cost control:

SWUP #1 – Maximum SWUP

For each type of food, determine the maximum SWUP (e.g., 2 cents/oz.) that can be paid with food stamps.

SWUP #2 – Maximum SWUP ratio

For each type of food, determine the minimum SWUP (e.g., 1 cent/oz.) that is available, and then establish a multiplier that represents the maximum unit price (e.g., 3X or 3 cents/oz.) above the minimum price for which food stamps can be used to purchase that food item.  The SWUP ratio is self-adjusting for food inflation.  As food prices rise, maintaining the SWUP ratio allows people to pay more for the same food items than when prices were lower.

Both SWUP methods offer SNAP aid recipients a fair amount of food choice.  What SWUP will also do is eliminate the purchase of high priced, gourmet items, such as the example below where food stamps were used to purchase lobster.   Purchasing gourmet foods and paying premium prices defeats the purpose of the SNAP program: to feed people for a month with the amount of food stamp money that they receive each month.

(A story behind the food stamp lobster cash register receipt)

http://www.snopes.com/photos/signs/receipt.asp

To test my SWUP cost control hypothesis, I did some comparison shopping for a hypothetical spaghetti dinner (pasta, tomato sauce, green beans, bread, bottled water.)  For this experiment, meat was excluded. Only packaged food items were evaluated to keep this simple.  For each food item, its price, weight, and packaging data were collected for 5-7 varieties on the grocery store shelf. The store’s discount card price was used where available.  The SWUP and SWUP ratios were calculated for all food items.  These are shown in the data and graphs below.
Below is a summary of the comparison shopping data, and a summary of the amount of food choices that would still be available with SWUP cost controls implemented.

Summary of comparison shopping data

Food Item/ Max. SWUP (cents/oz.) / Min. SWUP (cents/oz.)/ Max.-to-Min. SWUP Ratio
Spaghetti pasta / 37.4 / 6.3 / 5.9
Tomato sauce / 10.7 / 5.1 / 2.1
Green beans / 9.4 / 5.4 / 1.7
Bread / 15.0 / 5.5 / 2.7
Bottled water / 8.5 / 0.9 / 9.4

Summary of food purchasing choices with Max. SWUP Ratio=2.0

Food item / Starting no. of food choices / Remaining food choices with Max. SWUP Ratio=2.0
Spaghetti pasta / 7 / 3
Tomato sauce / 6 / 5
Green beans / 5 / 5
Bread / 6 / 3
Bottled water / 7 / 4

The comparison shopping data suggests that the SNAP program could potentially reduce food stamp spending by 25% to 50% by simply limiting how much money is spent on each food item, on a Standard Weight Unit Price basis.  Many more people could be served at a lower program cost.

On the other hand, if the purpose of the SNAP program is to provide families with enough food to keep them from going hungry, then contract the service out to food pantries, soup kitchens, and other nonprofits , and just provide people with baskets of food each week, at the lowest possible cost.

An issue that confronts some aid recipients is the lack of transportation to food retailers that offer the best food value.  They may have to shop at the nearest, high priced convenience store.  To this, consider that Domino’s Pizza delivers, Meals on Wheels delivers, and many grocery stores deliver or could start delivering.  It would be well worth the cost of a modest food delivery fee to cut food stamp expenditure by $billions.

The Economic Recipe Guide

August 20, 2011

Coming soon….. The Economic Recipe Guide (Click here to see front cover.)


EXCERPTS (or something similar) :

ECONOMIC DEFINITIONS

A Model for Structuring Public Service Organizations to Optimize Service Delivery

Recipe for a Balanced Government Budget