Title page
Contents
Highlights 2
Letter 7
Background 12
WIC Single-Supplier Competitive System 12
2022 National Infant Formula Shortage 15
Infant Formula Prices and Manufacturers' Rebates to State Agencies Declined in Recent Years 17
Inflation-Adjusted Prices for Formula Were Generally Stable or Fell during the Last Decade 17
Manufacturers' Rebates to States for WIC Infant Formula Declined in Recent Years After Several Years of Increases, Affecting Program Costs 20
WIC's Single-Supplier Competitive Contracts Caused Modest Infant Formula Price Increases and Large Market Share Increases for the Winning Brand 25
WIC's Single-Supplier Contracts Caused Modest Increases in Retail Prices for WIC Contract Products and Other Products under the Same Brand 25
Winning a WIC Single-Supplier Contract Caused a Large Increase in the Contract Brand's Sales and Market Share within a State 27
WIC's Single-Supplier Competitive System Provides Substantial Cost Savings for WIC but Also Has Disadvantages 31
USDA Estimates More Than 1 Million WIC Participants Are Served Each Month Due to Rebate Savings from WIC Infant Formula Contracts 31
States Cited Administrative Burden and Limited Choice as Disadvantages to WIC Agencies and Participants, While Higher Prices Affect Non-WIC Customers 32
WIC's Single-Supplier Competitive System Leaves States Vulnerable to Supply Chain Disruptions, and May Hinder Other Manufacturers from Gaining Market Share 34
Congress and FNS Have Taken Steps to Better Prepare the WIC Program to Respond to Formula Supply Disruptions 37
Alternatives Identified by Stakeholders and Relevant Studies Could Address Some Cited Disadvantages of the Current System, but Would Likely Increase Program Costs 40
Two Alternative Systems Cited in Current Regulations Could Reduce Some Aspects of Administrative Burden with the Current System but Increase Others 40
Three Other Alternative Systems Could Provide WIC Participants Additional Choices and Might Reduce Prices and Increase Market Resilience, but Would Likely... 43
Agency Comments 46
Appendix I: Econometric Analysis of the Infant Formula Retail Market and Manufacturer Rebates 48
Appendix II: Summary of Advantages and Disadvantages of Alternatives to the Single-Supplier Competitive System for WIC Infant Formula 78
Appendix III: GAO Contacts and Staff Acknowledgments 80
Figure 1. WIC Contract Manufacturers for Milk-Based Infant Formula by State as of August 2024 13
Figure 2. Example of the WIC Infant Formula Rebate Reimbursement Process 14
Figure 3. Average Retail Price for Milk-Based Infant Formula Products by Type in 2023 Dollars (adjusted for inflation), 2013-2023 18
Figure 4. Average Annual Percentage Price Increase for Milk-Based Powder Infant Formula (not adjusted for inflation), All CPI Dairy Items, and All CPI Goods, 2014-2023 19
Figure 5. Average Manufacturers' Rebate Percentage in State WIC Contracts by Milk-Based Infant Formula Type and Contract Initiation Year, 2008-2023 21
Figure 6. Change in the Rebate Percentage between the Current and Previous WIC Contracts for Milk-Based Powder Formula by State or Alliance, 2015-2023 22
Figure 7. WIC Infant Formula Rebates as a Percentage of Total WIC Food Costs, 2013-2023 24
Figure 8. Estimated Percent Increase in Infant Formula Products' Monthly Dollar Sales for a Brand Winning a State WIC Infant Formula Contract, 2018 to 2023 28
Figure 9. Estimated Average Infant Formula Brands' Market Share of Selected Products Before and After a New State WIC Infant Formula Contract is Initiated, 2018 to 2023 29
Table 1. Regression Results of Infant Formula Retail Price on WIC Contract Status, October 2018-September 2023 56
Table 2. Regression Results of Infant Formula Sales Quantity on WIC Contract Status, October 2018-September 2023 58
Table 3. Regression Results of Infant Formula Dollar Sales on WIC Contract Status, October 2018-September 2023 59
Table 4. Regression Results of a Product's Market Share on WIC Contract Status, October 2018-September 2023 61
Table 5. Regression Results of a Brand's Market Share on WIC Contract Status, October 2018-September 2023 63
Table 6. Regression Results of Unweighted Infant Formula Retail Price on WIC Contract Status, October 2018-September 2023 69
Table 7. Regression Results of Infant Formula Retail Price on State-Level Factors (First Stage Includes State-by-Quarter and Product-by-Quarter Fixed Effects),... 72
Table 8. Regression Results of Infant Formula Retail Price on State-Level Factors (First Stage Includes State-by-Quarter, Product-by-Quarter, and Product-by-State... 73
Table 9. Regression Results of WIC Rebates on State-Level Factors, 2013-2023 77
Table 10. Potential Advantages and Disadvantages of Alternatives to the Competitive Single-Supplier Contract System for Special Supplemental Nutrition Program... 78