Victor Oliveira

Elizabeth Frazão

David Smallwood

Economic

Research

Service

Economic 

Information

Bulletin

Number 119

December 2013

United States Department of Agriculture

Trends in Infant Formula Rebate 

Contracts: Implications for the 

WIC Program
Economic Research Service 

www.ers.usda.gov

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Recommended citation format for this publication:

Oliveira, Victor, Elizabeth Frazão, and David Smallwood. Trends in Infant Formula Rebate 

Contracts: Implications for the WIC Program, EIB-119. U.S. Department of Agriculture, 

Economic Research Service, December 2013.

Cover image: Elizabeth Frazão, USDA/ERS.

Use of commercial and trade names does not imply approval or constitute endorsement by USDA. 
United States Department of Agriculture

Economic 

Research 

Service

Economic

Information

Bulletin

Number 119

December 2013

Abstract 

The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) 

is the major purchaser of infant formula in the United States. To reduce the cost of 

infant formula to WIC, Federal law requires that WIC State agencies operate a costcontainment system for the purchase of infant formula. Typically, WIC State agencies 

obtain substantial discounts in the form of rebates from the infant formula manufacturers for each can of formula purchased through the program. Contracts are awarded to 

the manufacturer offering the WIC State agency the lowest net price (as determined by 

the manufacturer’s wholesale price minus the rebate). A previous Economic Research 

Service study based on data through 2008 found that net prices were increasing, 

raising concern that this trend, if it continued, could constrain WIC’s ability to serve 

all eligible applicants in the future. This study, based on data through February 2013, 

allays that concern. Real net prices for contracts in effect in February 2013 decreased 

by an average 43 percent (or 23 cents per 26 fluid ounces of reconstituted formula) from 

the previous contracts. As a result, WIC paid $107 million less for infant formula over 

the course of a year, holding retail markup constant. 

Keywords: Special Supplemental Nutrition Program for Women, Infants, and Children; 

WIC; infant formula; rebate; net price; ERS, USDA

Acknowledgments

The authors thank Linda Clarke and Ed Harper of USDA, Food and Nutrition Service and 

Zoë Neuberger of the Center on Budget and Policy Priorities for providing us with data, 

and the anonymous reviewers for their comments. The authors also thank ERS editor 

Susmita Pendurthi and ERS designer Cynthia A. Ray.

Victor Oliveira, Elizabeth Frazão, and David Smallwood

Trends in Infant Formula Rebate 

Contracts: Implications for the 

WIC Program
ii

Trends in Infant Formula Rebate Contracts: Implications for the WIC Program, EIB-119

Economic Research Service/USDA

Contents

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

The Infant Formula Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Characteristics of the Infant Formula Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Trends in Wholesale Prices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

WIC’s Infant Formula Rebate Program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Trends in Infant Formula Rebate Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Net Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Components of Net Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Discussion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Factors Behind the Decrease in Real Net Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Trends in Total Rebates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Impact of Lower Net Price on Infant Formula Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Appendix A—Start Dates of Current and Previous Rebate Contracts by State. . . . . . . . . . . . 25

Appendix B—Average Monthly Number of Infants in FY 2012 Participating 

in WIC in Areas Included in Study, by Breastfeeding Status. . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Errata

This report, originally released in December 2013, was reissued with the following corrections:

On December 24, 2013, a typo was discovered on page 17 of EIB-119, “Trends in Infant Formula 

Rebate Contracts: Implications for the WIC Program.” In figure 8 on page 17, the vertical axis label 

was corrected from “Billions” to “Millions.”
www.ers.usda.gov

What Is the Issue?

The U.S. Department of Agriculture’s (USDA) Special Supplemental Nutrition Program for 

Women, Infants, and Children (WIC) provides participating infants with free infant formula. 

WIC is the major purchaser of infant formula in the United States; well over half of all formula 

is purchased with WIC benefits. To reduce costs, WIC requires its State agencies to operate a 

cost-containment system for procuring infant formula. Typically, WIC State agencies obtain 

substantial discounts in the form of rebates from the infant formula manufacturers for each can 

of formula purchased through the program. In exchange for the rebate, a manufacturer is given 

an exclusive right to provide its infant formula to WIC participants in the State. Contracts are 

competitively awarded to the manufacturer offering the WIC State agency the lowest net price (as 

determined by the manufacturer’s wholesale price minus the rebate). 

WIC is a discretionary grant program funded annually by appropriations law. The number of 

participants who can be served within a fixed budget depends heavily on the program’s food 

package costs, which in turn are significantly affected by rebates and the cost of infant formula. 

A previous Economic Research Service (ERS) study found that net prices paid by nearly all WIC 

State agencies were increasing. The report cautioned that if real net prices continued to increase, 

rising formula costs under newly negotiated contracts could constrain WIC’s ability to serve all 

eligible applicants.

What Did the Study Find?

Among the 46 WIC State agencies that awarded new rebate contracts after December 2008, 

nearly all paid lower net prices in their current contracts (in effect in February 2013) than in their 

previous contracts after adjusting for inflation. Across the 46 WIC State agencies, real net price 

decreased by an average 43 percent (or 23 cents per 26 ounces of reconstituted fluid), allaying 

concerns about increasing real net prices. With lower net prices, combined with declining WIC 

purchases of infant formula, WIC State agencies paid $107 million less for formula in their new 

contracts over the course of a year. 

United States Department of Agriculture

A report summary from the Economic Research Service December 2013

ERS is a primary source 

of economic research and 

analysis from the U.S. 

Department of Agriculture, 

providing timely information on economic and policy 

issues related to agriculture, 

food, the environment, and 

rural America.

Find the full report 

at www.ers.usda.

gov/publications/eibeconomic-informationbulletin/eib-119.aspx

Victor Oliveira

Elizabeth Frazão

David Smallwood

Economic

Research

Service

Economic 

Information

Bulletin

Number 119

December 2013

United States Department of Agriculture

Trends in Infant Formula Rebate 

Contracts: Implications for the 

WIC Program

Victor Oliveira, Elizabeth Frazão, and David Smallwood

Trends in Infant Formula Rebate 

Contracts: Implications for the 

WIC Program
The decrease in net prices occurred during a period of fewer births, higher breastfeeding rates, and decreases in 

the average amount of formula provided in the WIC infant food packages. In the face of a shrinking market for 

their product, formula manufacturers may compete more aggressively for WIC contracts in order to maintain their 

sales volume.

How Was the Study Conducted? 

To examine trends or changes in net prices over time, this report compared the real net price in a State’s contract 

that was in effect in February 2013 to that of its previous contract. The analysis was based primarily on data on 

infant formula rebate contracts, compiled by USDA’s Food and Nutrition Service and by the Center on Budget and 

Policy Priorities, and infant formula wholesale prices as reported in the formula manufacturers’ price list catalogs. 

Information on the characteristics of the infant formula market was based on a 2008 proprietary report prepared 

for ERS by the Nielsen Company.

www.ers.usda.gov
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Trends in Infant Formula Rebate Contracts: Implications for the WIC Program, EIB-119

Economic Research Service/USDA

Trends in Infant Formula Rebate 

Contracts: Implications for the 

WIC Program

Victor Oliveira, Elizabeth Frazão, and David Smallwood

Introduction

The mission of the Special Supplemental Nutrition Program for Women, Infants, and Children 

(WIC) is to safeguard the health of low-income women, infants, and children who are at nutritional 

risk by providing supplemental foods, nutrition education, and referrals for health care and other 

social services (see box, “The Special Supplemental Nutrition Assistance Program for Woman, 

Infants, and Children (WIC)”). Although WIC recognizes and promotes breastfeeding as the 

optimal source of nutrition for infants, the program provides iron-fortified infant formula for women 

who do not fully breastfeed. WIC is the major purchaser of infant formula in the United States: the 

Economic Research Service (ERS) estimated that in 2004-06, between 57 and 68 percent of all 

infant formula sold in the United States was purchased with WIC benefits (Oliveira et al., 2010). 

Because of the large volume of formula purchased through the program, even small increases in 

per-can formula costs can result in large increases in total costs to the program.1

To reduce the cost of infant formula to WIC, Federal law requires that WIC State agencies operate 

a cost-containment system for the purchase of infant formula. Typically, WIC State agencies obtain 

substantial discounts in the form of rebates from the infant formula manufacturers for each can of 

formula purchased through WIC. In exchange for the rebate, the State agency agrees to issue the manufacturer’s infant formula as the formula of first choice to its infant participants (excluding those that 

are exclusively breastfed or, due to medical reasons, require exempt or noncontract infant formula).2

Contracts are awarded to the manufacturer offering the WIC State agency the lowest net price (as 

determined by the manufacturer’s wholesale price minus the rebate). As a result, the brand of infant 

formula provided by WIC varies by State, depending on which company holds the rebate contract. 

Rebates are an important source of savings for WIC.3 As the U.S. Department of Agriculture’s 

(USDA) largest discretionary program, WIC is funded annually by congressional appropriations. As 

a result, the number of participants who can be served within the program’s budget depends heavily 

1Although infant formula is now available in a variety of containers including tubs, cartons, pouches, and bottles, 

most formula is still sold in cans and, for simplicity, we use “can” throughout this report to describe all infant formula 

containers.

2An exempt infant formula is an infant formula intended for commercial or charitable distribution that is represented 

and labeled for use by infants who have inborn errors of metabolism or low birth weight, or who otherwise have unusual 

medical or dietary problems (21 CFR 107.3).

3Although not required by law, 18 WIC State agencies have rebate contracts for other infant foods (infant cereal, baby 

food fruits and vegetables, and baby food meat) (USDA, Office of Budget and Program Analysis, 2013). Rebates from 

infant formula manufacturers greatly exceed those from all other infant food manufacturers combined.
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Trends in Infant Formula Rebate Contracts: Implications for the WIC Program, EIB-119

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on the program’s food package costs, which in turn are significantly affected by the cost of infant 

formula.4 By negotiating rebates with formula manufacturers, WIC is able to serve more people 

within its appropriated budget.5

Net price is only one component of what WIC pays for infant formula. Participants in all States 

(except Vermont and Mississippi) “purchase” infant formula from authorized retail vendors using 

a food instrument (i.e., voucher, check, or electronic benefits transfer (EBT) card) that specifies the 

brand and amount of formula that can be purchased.6 The WIC State agency then reimburses the 

vendor for the full retail price of the formula purchased by WIC participants. Thus, the final cost 

to WIC for a can of formula has two components: (1) net price, and (2) retail markup. This report 

focuses on the net price component; ERS is conducting a separate study that examines the retail 

price of the formula purchased through WIC. 

Trends in net prices are important to monitor because net prices, along with retail markups, are 

what WIC—and ultimately U.S. taxpayers—pays for the infant formula. A previous ERS study 

by Oliveira et al. (2010) found that nearly all WIC State agencies paid a higher net price for infant 

formula in the contract that was in effect in December 2008 than under the previous contract, even 

after adjusting for inflation. On average, real net prices increased by 73 percent (or 21 cents for 26 

fluid ounces of reconstituted formula) between the two contracts.7 As a result of the increase in real 

net prices, WIC paid about $127 million (2008 dollars) more for infant formula over the course of 

a year (holding retail markup constant). The 2010 report cautioned that if real net prices continued 

to increase, it would cost the program even more in the future as current contracts expired and WIC 

State agencies negotiated new contracts with the formula manufacturers, which could negatively 

impact WIC’s ability to serve all eligible applicants. This report updates the previous ERS study by 

reexamining trends in net price, as well as in the two factors that affect net price—wholesale prices 

and rebates—based on data through February 2013. 

This study used several different sources of data. The analysis of changes in net price was based 

primarily on data on rebate contracts compiled by USDA’s Food and Nutrition Service (FNS) and by 

the Center on Budget and Policy Priorities (CBPP). Information on the characteristics of the infant 

formula market was based on a proprietary report prepared for ERS by the Nielsen Company, and 

data on infant formula wholesale prices came from the formula manufacturers’ price list catalogs 

provided by the CBPP. 

4In contrast, the Supplemental Nutrition Assistance Program (SNAP)—USDA’s largest nutrition assistance program—

is an entitlement program whereby everyone who meets the eligibility criteria may receive benefits if he or she chooses. 

5In the event that WIC does not have the funds to enroll all eligible applicants, WIC has a priority system to ensure that 

those most likely to benefit from the program receive benefits. Anecdotal evidence indicates that, since the late 1990s, 

the program has been able to provide benefits to all eligible people seeking to enroll in it, including those at the lowest 

priority levels.

6Participants in Mississippi pick up their WIC infant formula from storage facilities operated by the State or local 

agency. In Vermont, WIC infant formula is delivered to the participant’s home. 

7Because both the package sizes and reconstitution factors for formula in powder form differ across the three manufacturers and over time, all wholesale prices cited in both this report and the previous report were converted to a standard 

unit—26 fluid ounces of reconstituted formula. This volume represents the reconstituted volume of a can of liquid concentrate formula for all three manufacturers during most of the study period. This conversion allows for an easy comparison of prices across different package sizes and product forms.
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The Special Supplemental Nutrition Program for Women, Infants, 

and Children (WIC) 

WIC is based on the premise that early intervention during critical times of growth and development can help prevent future medical and developmental problems. To qualify for WIC, a 

person must be either a pregnant, breastfeeding, or non-breastfeeding postpartum woman; a 

child up to his/her fifth birthday; or an infant less than 1 year of age. The family income of WIC 

applicants must be at or below 185 percent of the Federal poverty guidelines (annual income of 

$42,643 for a family of four living in the 48 contiguous States between July 1, 2012 and June 

30, 2013). Applicants who participate in or who have certain family members who participate in the Supplemental Nutrition Assistance Program (SNAP), Medicaid, or the Temporary 

Assistance for Needy Families (TANF) are automatically income eligible. Applicants must also 

be nutritionally at risk, as determined by a health professional (such as a physician, nutritionist, 

or nurse). 

With total expenditures of $6.8 billion in fiscal 2012—or 6 percent of total USDA expenditures 

for domestic food and nutrition assistance—WIC is the Nation’s third largest nutrition assistance program, trailing only SNAP and the National School Lunch Program (USDA, 2012). In 

FY 2012, an average 8.9 million people participated in WIC each month, including 2.1 million 

infants (23 percent of all WIC participants). Over half of all infants born in the United States 

participate in WIC. 

Administered by USDA’s Food and Nutrition Service, WIC provides grants for food benefits, 

nutrition services, and administration to 90 WIC State agencies (including the 50 States, the 

District of Columbia, 5 U.S. territories—America Samoa, the Commonwealth of the Northern 

Mariana Islands, the Commonwealth of Puerto Rico, Guam, and the U.S. Virgin Islands—and 

34 Indian Tribal Organizations). Four States—California, Texas, Florida, and New York—

accounted for over one-third (36.5 percent) of all WIC infants in fiscal 2012, and they (along 

with Illinois, Georgia, Ohio, and North Carolina) accounted for half of all WIC infants. 
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The Infant Formula Market

This section looks at the characteristics of the U.S. infant formula market and trends in the wholesale prices of infant formula. 

Characteristics of the Infant Formula Market8

Infant formula accounted for about $3.5 billion in sales in 2007, up slightly from 2004. The small 

increase in dollar sales was solely the result of price increases as infant formula sales by volume (in 

reconstituted ounces) fell by about 5 percent between 2004 and 2007. This decrease in volume sales 

was a continuation of a trend found in an earlier ERS analysis of 1994-2000 data (Oliveira et al., 2004).

The infant formula market is highly concentrated. In 2008 (the latest available data), three manufacturers accounted for 98 percent of all dollar sales. Abbott, maker of the Similac product line (43 

percent), and Mead Johnson, maker of the Enfamil line (40 percent), accounted for the majority of 

dollar sales, while Nestlé (now Gerber), maker of the Good Start Line, accounted for another 15 

percent.9

Most infant formula is milk based (comprising some 80 percent of dollar sales in 2008), while soybased formula accounted for 14 percent of all dollar sales and other formula bases (such as protein 

hydrolysate) accounted for the remaining 6 percent. Powder is the primary product form for infant 

formula sold in the United States—in 2008, powder comprised 83 percent of all dollar sales, up from 

71 percent in 2004. During the same period, sales of liquid concentrate fell from 20 percent to 10 

percent of all formula sales, and ready-to-feed formula fell from 9 percent to 7 percent. The lower price 

of powder (per reconstituted unit of formula) may be an important economic factor in its growth.

Supermarkets (including mass merchandisers with full supermarkets) accounted for 63 percent of 

all dollar sales of formula in 2007 (down from 70 percent in 2004). The share of sales in warehouse 

clubs increased from 10 percent in 2004 to 13 percent in 2007, and the share of sales in “all other” 

channels (i.e., outlets other than supermarkets, mass merchandisers, drug stores, and warehouse 

clubs) almost doubled, increasing from less than 5 percent to 9 percent. This trend may reflect an 

increase in online shopping for infant formula. 

One of the most important developments in the infant formula market in the last decade was the 

introduction of formulas supplemented with the fatty acids docosahexaenoic acid (DHA) and arachidonic acid (ARA), which some studies have linked to improved vision and cognitive development 

in infants.10 Abbott first introduced these formulas into its U.S. product lines in 2002, with Mead 

Johnson and Nestlé following in 2003. Although more expensive than unsupplemented formulas, 

sales of DHA/ARA-supplemented formulas increased rapidly, and by 2004, they accounted for 

8The information in this section comes from a proprietary report on national and regional trends in the infant formula 

market, which was prepared for the Economic Research Service by the Nielsen Company (2008). See Oliveira et al. 

(2011) for more detailed information on the characteristics of the infant formula market based on the Nielsen report. 

9In February 2010, the brand name of Nestlé’s line of infant formulas was changed to Gerber.

10According to the Food and Drug Administration, the scientific evidence that the addition of docosahexaenoic acid 

and arachidonic acid to infant formulas is beneficial is mixed. “Some studies in infants suggest that including these fatty 

acids in infant formulas may have positive effects on visual function and neural development over the short term. Other 

studies in infants do not confirm these benefits. There are no currently available published reports from clinical studies 

that address whether any long-term beneficial effects exist” (U.S. Department of Health & Human Services, 2012).
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Trends in Infant Formula Rebate Contracts: Implications for the WIC Program, EIB-119

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69 percent of all dollar sales. By 2008, DHA/ARA-supplemented formulas accounted for nearly 

all—98 percent—dollar sales. 

Trends in Wholesale Prices

Infant formula manufacturers publish a wholesale price list for their products (see box, “Infant 

Formula Products Used in This Analysis”). The listed prices are set at the national level (i.e., they do 

not differ across States) and vary only by volume, with larger volume purchases—up to a truckload 

of formula—receiving a bulk discount. We examine the trends in national wholesale prices for a full 

truckload of infant formula produced by the three major manufacturers—Mead Johnson, Abbott, 

and Nestlé/Gerber—that currently hold all of the WIC infant formula rebate contracts. 

All three manufacturers raised their wholesale price per 26 reconstituted fluid ounces (for milkbased powder formula) multiple times between 2002 and 2012 (fig. 1). Since 2009, wholesale prices 

among the three brands have deviated more than in earlier years. As of December 2012, the price 

per 26 reconstituted ounces was $4.15 for Abbott, $4.01 for Mead Johnson, and $3.81 for Gerber.

We adjust wholesale prices for inflation using the Consumer Price Index for All Items, the most 

widely used measure of general price changes.11 The inflation-adjusted real wholesale price declines 

over time as inflation erodes the nominal price until manufacturers raise their national wholesale 

price, at which point the real wholesale price increases sharply (fig. 2). Note that in recent years, the 

real price of the three major brands has risen slightly faster than the rate of inflation. 

11We use the Consumer Price Index for All Items (CPI-U) as the deflator since we are interested in estimating the real 

cost of formula to taxpayers. Therefore, the relevant comparison is the price of infant formula relative to the price of other 

consumer goods. Using the general rate of inflation to deflate infant formula prices is consistent with previous studies of 

WIC and the infant formula market (e.g., Betson, 2009 and Davis, 2012). 

Infant Formula Products Used in This Analysis

Each of the three major manufacturers offers a number of infant formula products. Furthermore, 

each of the formula manufacturers’ product lines have changed over time as products are reformulated, new formulas introduced, and container sizes change. Fatty acids DHA (docosahexaenoic acid) and ARA (arachidonic acid) were introduced in the last decade as infant formula 

supplements; all analyses discussed in this report are based on the manufacturers’ primary ironfortified DHA/ARA-supplemented milk-based powder formula for routine feeding. They are:

Mead Johnson:

• Enfamil LIPIL (12.9 oz can) from 4/2003 to 7/2009 

• Enfamil Premium Infant (12.5 oz can) starting in 8/2009

Abbott: 

• Similac Advance (12.9 oz can) from 6/2002 to 5/2010 

• Similac Advance (12.4 oz can) starting in 6/2010

 Nestlé /Gerber:

• Good Start Supreme DHA/ARA (12 oz can) from 6/2003 to 4/2009 

• Good Start Gentle Plus (12 oz can) from 5/2009 to 5/2011

• Good Start Gentle Plus (12.7 oz can) starting in 6/2011 
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Figure 1

Nominal wholesale price of milk-based powder by brand, 2002-12

Dollars per 26 reconstituted ounces

Note: Wholesale prices represent the manufacturers' lowest national wholesale price per unit for a full truckload of 

infant formula as reported in each manufacturer's price list catalog. 

Source: USDA, Economic Research Service calculations based on infant formula manufacturers' product list catalogs.

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Mead Johnson

Abbott

Gerber

Figure 2

Real wholesale price of milk-based powder by brand, 2002-12

Dollars per 26 reconstituted ounces

Note: Wholesale prices (in September 2012 dollars) represent the manufacturers' lowest national wholesale price per unit 

for a full truckload of infant formula as reported in each manufacturer's price list catalog. 

Source: USDA, Economic Research Service calculations of real wholesale prices based on infant formula manufacturers' 

product list catalogs adjusted by the U.S. Department of Labor, Bureau of Labor Statistics' Consumer Price Index for All 

Urban Consumers for All Items. 

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Mead Johnson

Abbott

Gerber
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WIC’s Infant Formula Rebate Program

Current Federal regulations specify that WIC State agencies required to operate a cost-containment 

system for infant formula must use a single-supplier competitive system unless an alternative system 

provides equal or greater savings (7 CFR 246.16a).12 Under the single-supplier competitive system, 

a WIC State agency (or a group of WIC State agencies—see box, “Multistate Alliances”) uses 

competitive bidding to award a contract to a single manufacturer of infant formula in exchange for a 

rebate for each can of infant formula purchased by WIC participants. As a result, the conditions of 

the contract—including the amount of the rebate and the contract term (i.e., the period during which 

the infant formula rebate contract is in effect), as well as the manufacturer who holds the contract—

will vary across States.13 Since the mid-1990s, only the three major infant formula manufacturers 

have held rebate contracts.

12WIC State agencies with home delivery or direct distribution food delivery systems, and Indian State agencies with 

1,000 or fewer participants, are not required to use cost-containment procedures for infant formula (7 CFR 246.16a). 

13The average length of the most recently completed rebate contracts, including contract extensions, was 4.8 years (see 

appendix A for the dates in which each State’s current and previous rebate contracts became effective). 

Multistate Alliances

Of the 48 States, the District of Columbia, and the 5 territories operating a single-supplier 

competitive rebate system in conjunction with a retail food-delivery system as of February 2013, 

34 were part of a multistate alliance. In addition, 12 Indian Tribal Organizations (ITOs) were 

also part of an alliance.

• The Western States Contracting Alliance (WSCA) is comprised of 14 States (Alaska, 

Arizona, Delaware, Hawaii, Idaho, Kansas, Maryland, Montana, Nevada, Oregon, 

Utah, Washington, West Virginia, and Wyoming), the District of Columbia, 4 territories (American Samoa, Guam, the Virgin Islands, the Commonwealth of the Northern 

Mariana Islands), and 3 ITOs.

• The New England and Tribal Organization (NEATO) is comprised of five States 

(Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island), and two ITOs.

• The Mountain Plains Region is comprised of three States (Missouri, Nebraska, and 

South Dakota).

• The Southwest/Southeast Region is comprised of three States (Arkansas, New 

Mexico, and North Carolina). (One ITO has an agreement with North Carolina that 

allows the State to collect rebates on its behalf.) 

• The Southwest/Mountain Plains/Midwest Regions is comprised of three States (Iowa, 

Minnesota, Texas), and one ITO. 

• The Southwest Region is comprised of one State (Oklahoma) and five ITOs.

The remaining 19 States and Puerto Rico held contracts that applied solely to their particular State. 

Eight ITOs were not part of a multistate alliance, and another 14 ITOs had 1,000 or fewer participants and were therefore not required to use cost-containment procedures for infant formula. 
8

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Solicitation for bids can take one of two forms—single solicitation or separate solicitations. 

• Under single solicitation, the request for bids is for a single iron-fortified, milk-based infant formula 

that is suitable for routine issuance to most generally healthy, full-term infants. Manufacturers 

designate the specific infant formula product—referred to as the primary contract brand—for 

which they submit a bid.14 The WIC State agency must use the primary contract infant formula as 

the first choice of issuance to the WIC participants in that State. However, winning infant formula 

bidders are required to supply and provide a rebate on all infant formulas they produce that the WIC 

State agency chooses to issue, except exempt infant formulas.15 Bidders that do not produce a soybased infant formula are required to subcontract with another manufacturer to supply a soy-based 

infant formula. All infant formulas (except exempt infant formula) produced by the manufacturer 

awarded the rebate contract are referred to as contract-brand infant formulas.

• Under separate solicitations, bids are issued separately for milk-based and soy-based infant 

formulas. All relevant infant formulas issued under each contract are considered contract-brand 

infant formulas. The primary contract brand is the milk-based infant formula (for the milk-based 

contract) or the soy-based infant formula (for the soy-based contract) for which the rebate is being 

specified. Therefore, under separate solicitations, there could be two different contract brands in 

a State—one for milk-based formulas and a different one for soy-based formulas. All State agencies and multistate alliances that served a monthly average of more than 100,000 infants during 

the preceding 12-month period are required to issue separate bid solicitations for milk-based and 

soy-based infant formula (7 CFR 246.16a).

In their submission of sealed bids, manufacturers specify the rebates for a pre-specified amount 

of the primary contract-brand infant formula in each of the three forms—powder, liquid concentrate, and ready-to-feed. The amount of the rebate on these other contract-brand infant formulas 

is based on the same percentage discount (i.e., the amount of the rebate as a percentage of the 

wholesale price) for the particular physical form of the primary contract-brand infant formula (see 

box, “Percentage Discounts”). For example, if the rebate offered for the primary contract brand of 

powdered infant formula was 85 percent of the manufacturer’s wholesale price, then the rebate for 

all other powdered forms of the contract-brand infant formula (including soy-based powder under 

single solicitation) would also be 85 percent of their wholesale price. 

The contract is awarded to the bidder offering the lowest total monthly net price (as determined by 

the wholesale price minus the rebate). For the purpose of estimating the net price used in awarding 

contracts, WIC State agencies calculate the rebate, wholesale price, and percentage discount as of 

the date of the bid opening. The contracts contain inflationary provisions so that, in the event of 

14The primary contract brand must be offered in all physical forms—liquid concentrate, powder, and ready-to-feed. 

Although WIC usually issues formula in powdered or liquid-concentrate forms, formula may be issued in the ready-tofeed form in special situations, such as when the participant’s household has an unsanitary or restricted water supply or 

poor refrigeration, or if the person caring for the infant may have difficulty in correctly diluting concentrated forms or 

reconstituting powdered forms (7 CFR 246.10).

15Under special circumstances, WIC may issue formula not manufactured by the WIC contract manufacturer. Such 

formula (referred to as noncontract infant formula) may be issued only with medical documentation (provided by a 

licensed health care professional authorized to write medical prescriptions under State law) that an infant has a condition 

that dictates the formula’s use. The only exception to this rule is that local WIC agencies may issue noncontract-brand 

infant formula without medical documentation in order to accommodate religious eating patterns (65 Federal Register 

51213-51229). WIC State agencies do not receive rebates from noncontract-brand infant formula, and some States have 

disallowed any use of noncontract formula.
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Percentage Discounts

Manufacturers’ rebates are generally large. For example, among current contracts, the average 

percentage discount (i.e., the amount of the rebate as a percentage of the wholesale price) for 

milk-based powder—the predominant type of formula used in the WIC Program—was 92 

percent. The percentage discount ranged from 77 percent in North Dakota to 98 percent in 

Arkansas, New Mexico, and North Carolina. In other words, the infant formula purchased 

through WIC cost those latter three States’ WIC programs only 2 percent of its wholesale price 

(plus the amount of the retail markup). In total, 21 States (including Washington, D.C.) received 

discounts of 95 percent or more. 

The supply-side and demand-side characteristics of the infant formula market provide possible 

explanations about how infant formula manufacturers can afford to offer such high percentage 

discounts. For example, on the supply side, the formula market is highly concentrated with only 

three major manufacturers—a factor which is often associated with higher profit margins (U.S. 

General Accounting Office, 1998). This gives manufacturers a cushion to offer high rebates.

On the demand side, over half of all infant formula is purchased through WIC, ensuring large 

sales for the contract-winning manufacturer. In addition, manufacturers may realize spillover 

benefits from winning a WIC contract. For example, retailers generally devote more shelf space 

and better product placement to the WIC contract brand. This results in greater product visibility, which in turn may spur sales to non-WIC consumers. See Oliveira et al. (2011) p. 18 for 

a more detailed discussion of the possible mechanisms by which formula manufacturers may 

realize spillover effects. 

Infant formula rebates as a percentage of the wholesale price for current milk-based 

powder contracts, by State

Percent

Note: Rebate plus net price sums to 100 percent of the wholesale price. Current contracts refers to contracts in effect 

in February 2013. NEATO (New England and Tribal Organization) and WSCA (Western States Contracting Alliance) are 

multistate alliances. For a list of members of each alliance, see box, "Multistate Alliances."

Source: USDA, Economic Research Service calculations based on data from USDA, Food and Nutrition Service 

and the Center on Budget and Policy Priorities.

0

20

40

60

80

100

FL 2/08

PA 10/08

OK 10/08

TN 7/09

ND 7/09

MO, NE, SD 10/09

SC 4/10

GA 10/10

WI 1/11

NY 7/11

KY 7/11VA 7/11

OH 10/11

NEATO 10/11

IN 10/11

MI 11/11

IL 2/13

CA 8/12

LA 10/12

AL 10/12

NJ 10/12

CO 1/13

TX, MN, IA 10/12

WSCA 10/12

AR, NM, NC 10/12
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an increase/decrease in the wholesale price after the bid opening, there is a cent-for-cent increase/

decrease in the rebate amounts. Thus, the nominal net price of formula to a WIC State agency 

remains fixed over the entire contract term despite increases (or decreases) in the wholesale price 

after the contract is initiated. Although the nominal net price remains constant over time, the real 

(i.e., inflation adjusted) net price will decrease over time due to general price inflation.
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Trends in Infant Formula Rebate Contracts

This section looks at recent trends in net price for milk-based infant formula in powdered form—

the predominant type of formula provided through WIC. Because net price is determined by the 

wholesale price and the rebate, trends in these two factors are also examined. The analysis updates 

a previous study by the authors that was based on data through 2008 (see box, “Previous ERS Study 

on Infant Formula Rebates”). 

Net Price

The methodology used in the current study is similar to that of the previous study: the real net price in 

each State’s contract that was in effect in February 2013 (i.e., the “current” contract) was compared to 

that of its previous contract. Net prices are set as of the time of the bid opening and do not change in 

nominal terms over the length of the contract. However, the real (i.e., adjusted for inflation) net price 

decreases over time due to inflation. To control for the erosion in the real net price over the length of 

the contract, we compared the real net price (in February 2013 dollars) for the two contracts at the time 

each contract became effective (when the WIC State agency began to reimburse the retailers for the 

contract-brand formula purchased with the WIC food instrument (see appendix A for the start date in 

each State)). The unit of analysis for this study was the geographic State and the District of Columbia. 

We excluded five States from the analyses—Mississippi and Vermont (which do not use retail fooddelivery systems), as well as Florida, Oklahoma, and Pennsylvania, which have not awarded any new 

contracts since the previous report was released.16 As a result, the following analyses were based on 46 

WIC State agencies (45 States and the District of Columbia).17

Real net price decreased in 20 of the 22 contracts awarded after 2008, or in 44 of the 46 WIC State 

agencies (fig. 3). This means that nearly all of the WIC State agencies that awarded new contracts 

after 2008 are paying less per unit of formula in the current contract than under the previous one (after 

adjusting for inflation and holding retail markup constant). On average, real net prices decreased by 

23 cents (for 26 fluid ounces of reconstituted formula) between the States’ last two contracts (see box, 

“Weighted Averages”).18 This represented a 43-percent decrease in real net prices. 

Components of Net Price

Examination of the two components of real net price—wholesale price and rebates—indicates 

that they had opposing impacts. Real wholesale price increased in 17 of the 22 contracts (or in 39 

of the 46 WIC State agencies) (fig. 4). The increase in real wholesale prices was usually greatest 

for the more recent contracts (i.e., contracts that became effective in 2012 and 2013), reflecting the 

recent increase in real wholesale prices across all three manufacturers as illustrated in figure 2. On 

average, real wholesale prices increased by 21 cents (or 6 percent) per 26 reconstituted fluid ounces 

of formula between the previous contract and the current one. 

16Florida, Oklahoma, and Pennsylvania each last awarded a contract in 2008. Although Puerto Rico was included in 

the previous study, it was excluded from this analysis because we were not able to obtain data on its most recent rebate 

contract. 

17The number of infants residing in territories and Indian Tribal Organizations that were part of a multistate alliance 

included in the study were used in deriving our weighted averages (see box “Weighted Averages”).

18In nominal terms (i.e., not adjusting for inflation), the average decrease in net price was 17 cents per 26 ounces of 

reconstituted formula.
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Previous ERS Study on Infant Formula Rebates

In an Economic Research Service (ERS) report released in 2010, the authors compared the net 

price in each State’s contract that was in effect in December 2008 to that of its previous contract 

(Oliveira et al., 2010). The analysis excluded Mississippi and Vermont, which do not use retail 

food-delivery systems, as well as all Indian Tribal Organizations. 

Results from that study indicated that nearly all WIC State agencies paid a higher real net price 

for milk-based powdered formula in their rebate contracts that were in effect in December 2008 

than in their previous contracts. Forty-five of the 48 geographic States, along with the District 

of Columbia, and all 5 U.S. territories saw an increase in their real net price. Across the WIC 

State agencies, real net prices increased by an average 21 cents for 26 fluid ounces of reconstituted formula between States’ previous contract and the rebate contracts in effect in December 

2008. As a result of the increase in real net prices, WIC State agencies paid about $127 million 

more for infant formula over the course of a year, holding retail markup constant. 

Most (72 percent) of the increase in real net price was due to an increase in the real wholesale 

price of infant formula that, in turn, was due in large part to a switch to formulas supplemented 

with fatty acids DHA (docosahexaenoic acid) and ARA (arachidonic acid)—introduced in the 

last decade as infant formula supplements. All rebate contracts in effect in December 2008 

were based on DHA/ARA-supplemented formulas, whereas most of the previous contracts were 

based on unsupplemented formulas. Because the wholesale prices of DHA/ARA-supplemented 

formulas were significantly higher than wholesale prices of unsupplemented formulas, wholesale 

prices of infant formula increased more in States that switched to the DHA/ARA-supplemented 

formula in their contracts that were in effect in December 2008. The remaining 28 percent of the 

increase in real net price was due to a decrease in real rebates. The average percentage discount 

in the previous contracts was 91 percent. The average percentage discount in the contracts in 

effect in December 2008 fell to 85 percent. Thus, WIC State agencies were paying a greater 

percentage of a higher wholesale price, on average, than in their previous contracts. 

Change in real net price between contracts in effect in December 2008 and previous 

contracts, by State 

Dollars per 26 reconstituted ounces

Note: December 2008 dollars. Previous contracts refers to contracts that were in effect immediately prior to the 

December 2008 contract. NEATO (New England and Tribal Organization) and WSCA (Western States Contracting Alliance)

are multistate alliances. For a list of members of each alliance, see box, "Multistate Alliances." 

Source: Oliveira et al., 2010. 

Year most recent contract became effective

-0.4

-0.2

0

0.2

0.4

0.6

0.8

2003 2004 2005 2006 2007 2008

IL

MO

NE, SD

TN

SC

ND

WI

KY

NY

VA

AR, NM, NC

GA

OH

NEATO

MI

CA

AL

IA, MN, TX

IN

LA

NJ

WSCA

CO

FL

OK

PA

Puerto Rico
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Trends in Infant Formula Rebate Contracts: Implications for the WIC Program, EIB-119

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Figure 3

Change in real net price between current and previous contracts, by State 

Dollars per 26 reconstituted ounces

Note: February 2013 dollars. Current contracts refers to contracts in effect in February 2013. Previous contracts refers to 

contracts that were in effect immediately prior to the current contract. NEATO (New England and Tribal Organization) and 

WSCA (Western States Contracting Alliance) are multistate alliances. For a list of members of each alliance, see box, 

"Multistate Alliances." 

Source: USDA, Economic Research Service calculations based on USDA, Food and Nutrition Service data and data from 

the Center on Budget and Policy Priorities adjusted by U.S. Department of Labor, Bureau of Labor Statistics' Consumer 

Price Index for All Urban Consumers for All Items.

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0.0

0.1

0.2

2009 2010 2011 2012 2013

TNNDMO, NE, SDSC

GA

WI

NYKYVAOHNEATOIN

MICAWSCAAR, NM, NC

IA, MN, TX

LA

ALNJCO

IL

Year most recent contract became effective

Figure 4

Change in real wholesale price between current and previous contracts, by State 

Note: February 2013 dollars. Current contracts refers to contracts in effect in February 2013. Previous contracts refers to 

contracts that were in effect immediately prior to the current contract. NEATO (New England and Tribal Organization) and 

WSCA (Western States Contracting Alliance) are multistate alliances. For a list of members of each alliance, see box, 

"Multistate Alliances." 

Source: USDA, Economic Research Service calculations based on USDA, Food and Nutrition Service data and data from 

the Center on Budget and Policy Priorities adjusted by U.S. Department of Labor, Bureau of Labor Statistics' Consumer 

Price Index for All Urban Consumers for All Items.

Dollars per 26 reconstituted ounces

Year most recent contract became effective

-0.2

-0.1

0

0.1

0.2

0.3

0.4

0.5

0.6

MO, NE, SD

TN

ND

SC

GA

WI

NY

KYVA

OH

NEATO

IN

WSCA

AR, NM, NC

MI

CA

LA

IA, MN, TX

AL

NJ

IL

CO

2009 2010 2011 2012 2013
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Trends in Infant Formula Rebate Contracts: Implications for the WIC Program, EIB-119

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The impact on net price of the increase in real wholesale prices was more than offset by an increase 

in real rebates. Real rebates increased in 19 of the 22 contracts (or in 43 of the 46 WIC State agencies) (fig. 5). On average, real rebates increased by about 44 cents (or 14 percent) per 26 reconstituted fluid ounces of formula between the previous and current contracts. 

We also examined rebates in terms of the percentage discount (i.e., the rebate of the primary 

contract brand as a percentage of the wholesale price) which is used to calculate the amount of 

the rebate for all of the other formula products produced by the manufacturer awarded the rebate 

contract. The average percentage discount in the 22 previous contracts was 85 percent. In other 

words, on average, WIC paid 15 percent of the wholesale price for formula (plus the retail markup). 

The average percentage discount in the 22 current contracts increased by an average of 7 percentage 

points to 92 percent, indicating that, as a whole, WIC State agencies are now paying a smaller 

percentage of the wholesale price than previously.19 For 20 of the 22 contracts (representing 44 of 

the 46 WIC State agencies), the percentage discount increased between the previous contract and 

the current one (fig. 6). Thus, in both absolute terms (real rebates) and relative terms (percentage 

discounts), the vast majority of States experienced an increase in the size of the rebate in their 

current contract relative to their previous one. 

19Although the 92-percent average percentage discount for current contracts was higher than the 85-percent average 

percentage discount for the contracts in effect in December 2008, it was similar to the 91-percent average percentage 

discount observed among contracts prior to that time (Oliveira et al., 2010). 

Weighted Averages

In all of the analyses conducted specifically for this report, averages refer to weighted averages 

where the weights are based on each State agency’s 2012 average monthly caseload of infants 

receiving formula through WIC. The average monthly caseload of infants includes infants 

residing in the State (or States if a multistate alliance), as well as infants in the U.S. territories 

and Indian Tribal Organizations covered under the contract (see appendix B). Under current 

WIC regulations, the maximum monthly allowance of formula for partially breastfed infants is 

about half of the maximum monthly allowance for fully formula-fed infants. In order to account 

for the smaller amounts of formula that partially breastfed infants receive, State weights were 

calculated as the sum of the number of fully formula-fed infants and half the number of partially 

breastfed infants. As a result, if one State has an average monthly caseload of infants receiving 

formula through WIC (adjusted by breastfeeding status) that was twice as large as another State, 

that State received a weight that was twice that of the smaller State. These weights are slightly 

different from the weights used in the previous study (which used total infant caseload in each 

State) and take advantage of the data available as of 2010 on the number of formula-fed and 

partially breastfed infants. 

The use of average monthly caseloads in FY 2012 for all calculations related to both the current 

and previous contracts assumes that there was no change in the distribution of caseloads across 

the WIC State agencies between FY 2012 and the time when the States’ previous infant formula 

contract became effective. As a result, any change in the variable of interest (e.g., real net price) 

represents a change in the value of the variable and not a change in the weights used in the 

calculations. 
15

Trends in Infant Formula Rebate Contracts: Implications for the WIC Program, EIB-119

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Figure 5

Change in real rebates between current and previous contracts, by State 

Dollars per 26 reconstituted ounces

Note: February 2013 dollars. Current contracts refers to contracts in effect in February 2013. Previous contracts refers to 

contracts that were in effect immediately prior to the current contract. NEATO (New England and Tribal Organization) and 

WSCA (Western States Contracting Alliance) are multistate alliances. For a list of members of each alliance, see box, 

"Multistate Alliances." 

Source: USDA, Economic Research Service calculations based on USDA, Food and Nutrition Service data and data from 

the Center on Budget and Policy Priorities adjusted by U.S. Department of Labor, Bureau of Labor Statistics' Consumer 

Price Index for All Urban Consumers for All Items.

Year most recent contract became effective

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

MO, NE, SD

TN

ND

SC

GA

WI

NY

KYVA

OH

NEATO

IN

WSCA

AR, NM, NC

MI

CA

LA

IA, MN, TX

AL

NJ

IL

CO

2009 2010 2011 2012 2013

Figure 6

Percentage discount rates for current and previous contracts, by State

Rebates as percent of wholesale price

Note: Current contracts refers to contracts in effect in February 2013. Previous contracts refers to contracts that were in 

effect immediately prior to the current contract. NEATO (New England and Tribal Organization) and WSCA (Western 

States Contracting Alliance) are multistate alliances. For a list of members of each alliance, see box, "Multistate Alliances." 

Source: USDA, Economic Research Service calculations based on data from USDA, Food and Nutrition Service and the 

Center on Budget and Policy Priorities. 

0

10

20

30

40

50

60

70

80

90

100

Previous contract

MO, NE, SD

TN

ND

SC

GA

WI

NY

KYVA

OH

NEATO

IN

WSCA

AR, NM, NC

MI

CA

LA

IA, MN, TX

AL

NJ

IL

CO

2009 2010 2011 2012 2013

Current contract

Year most recent contract became effective
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Discussion

This study of infant formula rebate contracts found that real net prices for current contracts 

decreased by an average 43 percent (or 23 cents per 26 fluid ounces of reconstituted formula) 

from the previous contracts. Although real wholesale prices increased on average between the two 

contracts (by 21 cents per 26 fluid reconstituted ounces), the real rebates provided by the manufacturers increased even more (by 44 cents per 26 fluid reconstituted ounces) (fig. 7). 

Factors Behind the Decrease in Real Net Price

The 43-percent decrease in real net prices raises an important question: Why are formula manufacturers offering infant formula to WIC at lower prices than before? Although the manufacturers 

do not make the reasons behind their bidding decisions public, one of the major factors behind the 

decrease in net price may be the decline in the demand for formula in the United States, brought 

about by demographic changes, changes in infant feeding practices, and revisions to the WIC food 

packages. 

Decrease in the number of births. The number of births in the United States declined each year from 

2007 to 2011, and preliminary data suggest that the decline in births continued in 2012 (Hamilton 

and Sutton, 2012) (fig. 8). 

Increase in breastfeeding rates. While births are decreasing, breastfeeding rates for U.S. infants 

across all ages are continuing to rise (fig. 9).

Figure 7

Average change in real net price, wholesale price, and rebate between current 

and previous contracts

Dollars per 26 reconstituted ounces

Note: Current contracts refers to contracts in effect in February 2013. Previous contracts refers to contracts that were in 

effect immediately prior to the current contract. Analysis limited to those States whose most recent contract went into 

effect after 2008. Averages were estimated using weighted data.

Source: USDA, Economic Research Service calculations based on USDA, Food and Nutrition Service data and data 

from the Center on Budget and Policy Priorities adjusted by U.S. Department of Labor, Bureau of Labor Statistics' 

Consumer Price Index for All Urban Consumers for All Items.

-0.3

-0.2

-0.1

0

0.1

0.2

0.3

0.4

0.5

Real net price

Real wholesale price Real rebate
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Figure 8

Number of U.S. births, 2000-12

Millions

Note: Data for 2012 are based on provisional data through June 2012. 

Source: Hamilton and Sutton, 2012, and Martin et al., 2012. 

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Figure 9

Breastfeeding among U.S. children born 2000-10

Percent

Source: Data from the Centers for Disease Control and Prevention's National Immunization Survey. 

0

10

20

30

40

50

60

70

80

90

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Early postpartum period

At 6 months

At 12 months
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Revisions to the WIC food packages. In December 2007, program regulations governing the WIC 

food packages were revised to reflect advances in nutrition science and dietary recommendations 

and to address current supplemental nutritional needs of WIC participants (72 Federal Register 

68965-69032). WIC State agencies were required to implement the new provisions by October 1, 

2009. In an effort to promote and increase duration of breastfeeding, the new WIC food packages 

provide different amounts of infant formula depending on the infant’s age and feeding method. ERS 

estimated that, given the same number of fully formula feeding, partially breastfeeding, and fully 

breastfeeding infants, the new food packages would result in a considerable reduction in the amount 

of infant formula purchased through the WIC program (Oliveira et al., 2010). To the degree that 

WIC recipients do not purchase more formula with their own funds to make up for the reduction 

in WIC-provided formula, the revisions to the WIC food packages might contribute to a decreased 

demand for formula. 

Fewer births, higher breastfeeding rates, and reduced formula purchases through WIC all contribute 

to the decreased demand for formula and lower total sales of formula. Infant formula manufacturers 

have large fixed costs associated with their manufacturing plants and low (and perhaps declining) 

marginal costs of production. Operating plants at less than their optimal level may be inefficient and 

lead to higher per unit costs. 

Since WIC sales account for such a large share of total sales of formula, winning or losing WIC 

infant formula rebate contracts can have a significant effect on a manufacturer’s sales levels. A 

previous ERS study based on over 7,000 retail stores in 30 States found that WIC contract brands 

accounted for 84 percent of all formula sold in supermarkets (Oliveira et al., 2011). The impact 

of a switch in the manufacturer holding the WIC contract was considerable. The market share of 

the manufacturer of the new WIC contract brand increased by an average 74 percentage points 

after winning the contract. Although most of this increase was the direct effect of WIC recipients switching to the new WIC contract brand, manufacturers also realized a spillover effect from 

winning the WIC contract whereby sales of their formula purchased outside of WIC also increased. 

These spillover effects are very important to the formula manufacturers since, unlike formula 

purchased through WIC, manufacturers do not pay a rebate on formula that is purchased outside the 

program. For example, since the average percentage discount of current contracts was 92 percent, 

this means that the revenue received by formula manufacturers for each can of non-rebated formula 

was over 12 times greater than the revenue for each can of formula purchased through WIC. 

Thus, in the face of a shrinking market for their product, manufacturers may compete more aggressively for WIC contracts in order to maintain their sales volume. This strategy may be even more 

important given that WIC infants account for an increasing share of all infants in the United States 

(fig. 10).

20 In other words, as the overall formula market is shrinking, the non-WIC market is 

shrinking faster. Therefore, winning WIC infant formula contracts becomes an even more important strategy than in previous years for formula manufacturers trying to maintain production levels, 

resulting in manufacturers bidding more aggressively to win WIC contracts. 

In addition to the decreased demand for formula, FNS efforts to strengthen the bid solicitation and 

contracting process for infant formula rebate systems may have played a role in the decrease in 

real net price. For example, in 2005, FNS noted that WIC State agencies were requiring increased 

20Part of this trend is likely due to the economic downturn in the United States in recent years. As economic conditions worsen, the number of unemployed persons increase, average household income falls, and a greater percentage of 

infants meet WIC’s income eligibility guidelines.
19

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Economic Research Service/USDA

quantities of free infant formula and other free items such as educational materials, conference 

support, and supplies and that this had the potential effect of reducing rebate savings (70 Federal 

Register 43332-43335). In 2008, FNS issued a final rule that prohibited WIC State agencies from 

requiring that infant formula manufacturers provide free infant formula or other items in their infant 

formula rebate bid solicitations (73 Federal Register 21807-21811). 

Other factors may have also had an effect on manufacturers’ bidding decisions. For example, 

whereas all rebate contracts in effect in December 2008 were based on the more expensive DHA/

ARA-supplemented formulas, most of the previous contracts were based on unsupplemented 

formulas. The higher net prices associated with the contracts in effect in December 2008 may 

reflect an adjustment period during which the infant formula manufacturers were modifying their 

WIC contract bidding strategies based on these new formulas. Also, in recent years, a number of 

organizations (including the California WIC Association (2009), the Center on Budget and Policy 

Priorities (Neuberger, 2010), and the National WIC Association (2011)) have raised questions about 

the effectiveness of new additives in infant formula (e.g., DHA/ARA, prebiotics, and probiotics) and 

new product lines (e.g., special formulas for fussiness, spitting up, and gas) and their impacts on 

WIC food costs. This negative attention may have encouraged infant formula manufacturers to offer 

higher rebates and lower net prices in their new contracts. 

Trends in Total Rebates

Data from FNS indicate that total rebates to WIC have declined substantially in recent years, from 

$2 billion in FY 2008, to $1.7 billion in FY 2012—a decrease in nominal terms of 16 percent. (In 

real terms, i.e., after accounting for inflation, the decrease was even greater at 21 percent.) At first 

glance, the decrease in total rebates appears to contradict this study’s finding that real rebates per 

Figure 10

WIC infants as a percent of all U.S. infants, 2000-12

Percent

Note: WIC refers to the Special Supplemental Nutrition Program for Women, Infants, and Children. WIC infants as a 

percent of all U.S. infants from 2000 to 2011 was estimated by dividing the average monthly number of WIC infants in a 

given fiscal year (October–September) by the total number of live births in the United States during the corresponding 

calendar year (January-December). Because the number of live U.S. births in 2012 was only available for the first 6 

months of the year, when this report was being prepared, WIC infants as a percent of all U.S. infants for that year was 

estimated by dividing the average monthly number of WIC infants in fiscal 2012 by twice the total number of live births 

in the United States during the first 6 months of 2012. Data on the number of live births in 2011 was preliminary; data 

on the number of live births in 2012 was provisional. 

Source: USDA, Economic Research Service calculations based on data from USDA, Food and Nutrition Service; 

Hamilton and Sutton, 2012; and Martin et al., 2012. 

0

10

20

30

40

50

60

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
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26 reconstituted fluid ounces increased 14 percent between current contracts and States’ previous 

contracts. However, while rebates per 26 reconstituted fluid ounces of formula have increased, 

the number of infants participating in WIC has declined (fig. 11), breastfeeding rates among WIC 

infants have increased (fig. 12), and the average amount of formula provided in the WIC infant food 

packages has declined, all of which results in less total formula being purchased through WIC. This 

smaller volume of formula purchased has led to a decrease in the total amount of rebates provided to 

WIC, even as rebates per unit have increased. 

Impact of Lower Net Price on Infant Formula Costs

Estimating the impact of the decrease in real net prices on total infant formula costs to WIC 

involved a number of steps:

Average monthly number of WIC infants. We held the number of WIC infants constant at FY 

2012 levels in order to eliminate the effect of changes in caseload size on formula cost estimates. 

Furthermore, we included only WIC infants who resided in an area covered under a contract examined in this report. Therefore, the count excludes infants residing in 5 States (Florida, Mississippi, 

Oklahoma, Pennsylvania, and Vermont), Puerto Rico, and 27 Indian Tribal Organizations not part 

of a multistate alliance covered in this study. This resulted in an average monthly total of 1,790,813 

infants in covered States in FY 2012 (or about 87 percent of all WIC infants). 

Total amount of WIC formula issued per month. The average number of WIC infants per month 

(derived in step 1) was multiplied by 618.8 (ounces)—the estimated average monthly amount of 

Figure 11

Infants in WIC, FY 2002-12

Millions

Note: WIC refers to the Special Supplemental Nutrition Program for Women, Infants, and Children.

Source: USDA, Food and Nutrition Service, Budget Division's Program Information Report (Keydata), U.S. Summary, 

September, various years. 

0

0.5

1.0

1.5

2.0

2.5

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
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reconstituted formula prescribed per WIC infant.21 This resulted in an estimate of 1.108 billion 

reconstituted fluid ounces of WIC formula issued to WIC infants each month.22

Adjustment for use of noncontract formula. We account for the fact that some WIC infants are 

issued noncontract formula, which is not eligible for rebates. The most recent data on noncontract 

formula use in WIC are from a 2006 report by the U.S. Government Accountability Office (GAO), 

which estimated that 8 percent of all WIC infant formula was noncontract. Although anecdotal 

evidence suggests that the issuance of noncontract formula in WIC has decreased since the GAO 

report was released, we used the GAO estimate and reduced the estimate of total amount of WIC 

formula consumed per month (derived in step 2) by 8 percent. This resulted in an adjusted estimate 

of about 1.020 billion reconstituted ounces of rebated formula per month. 

Average change in net price. We divided the estimated reconstituted fluid ounces of rebated 

formula per month derived in the previous step by 26 in order to derive an estimate per 26 reconstituted ounces. We multiplied this by the estimated average real change in net price ($0.228) per 26 

reconstituted fluid ounces between WIC State agencies’ current and previous contracts. This resulted 

in an estimated total decrease in real net price of $8.940 million per month. 

21This was based on Economic Research Service calculations using unpublished Food and Nutrition Service 2010 WIC 

Participant and Program Characteristics data on the total amount of formula issued during the month of April to all 

infants (regardless of age or breastfeeding status) in the State agencies that provided the data, and total number of infants.

22We assumed that all prescribed formula was redeemed. 

Figure 12

Proportion of 7- to 11-month-old WIC infants ever breastfed, 1998-2010

Percent

Note: WIC refers to the Special Supplemental Nutrition Program for Women, Infants, and Children.

Source: USDA, Food and Nutrition Service, WIC Participant and Program Characteristics Report, various years.

0

10

20

30

40

50

60

70

1998 2000 2002 2004 2006 2008 2010
22

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Annualized cost estimate. We multiplied the monthly estimate of the decrease in net price from the 

previous step by 12 (the number of months in a year) to derive the estimated total reduction in real 

net price to WIC over a year ($107.3 million).23

This estimated reduction of $107 million in real net price paid by WIC State agencies between the 

current and previous contracts is based on the assumption that all the WIC formula-fed infants in 

the covered areas who received contract-brand formula received milk-based powdered formula.24

This estimated reduction does not take into account any potential savings associated with Florida, 

Oklahoma, and Pennsylvania (which have not awarded any new contracts since 2008) and Puerto 

Rico (due to lack of data).25 The current contracts for Oklahoma and Pennsylvania are scheduled 

to expire in September 2013, and the current contract for Florida is scheduled to expire in January 

2014. Given the trends identified in this study, these States may also realize a decrease in their net 

prices in their next contract, which would result in even greater total savings to WIC. 

Conclusions

Concerns raised in Oliveira et al. (2010) regarding a continuation of the trend of decreasing infant 

formula rebates and higher net prices have not been realized. Instead of continuing to increase, 

net prices decreased markedly between the contracts in effect in February 2013 and the previous 

contracts. This study estimates that the lower net prices resulted in WIC paying $107 million less for 

infant formula over the course of a year, holding both the amount of formula and the retail markup 

constant. Thus, the increase in net price observed in the prior report seemingly was not the beginning of a longrun trend. However, it is too soon to know if the decrease in net prices is a return 

to historic levels or a short-term anomaly. The infant formula market is dynamic and constantly 

evolving, and multiple factors (including product innovations, demographics, economic conditions, 

and changes in the WIC program) could affect the amount of rebates WIC receives from formula 

manufacturers in the next round of contracts. Future research will address patterns in bidding by all 

three infant formula manufacturers—the losers as well as the winning WIC contract manufacturers. 

23The estimated aggregate annual savings of $107 million in formula costs associated with the current contracts are 

lower than the estimated aggregate annual increase of $127 million in formula costs associated with the previous study 

based on contracts in effect in December 2008 (even though the magnitude of the per unit change in net price was greater 

for the current contracts). The reason for this counterintuitive result is that the amount of formula provided through WIC 

decreased between 2008 and 2013. 

24While the majority of formula-fed infants receive milk-based powdered formula, some also consume other types of 

formula such as milk-based liquid concentrate and soy-based formulas. WIC receives a rebate on these other types of 

formula as well, although the rebates on these other types of formula may differ from the rebate for milk-based powder 

formula. The percentage of infants in WIC receiving these other types of formula is unknown. 

25No savings were estimated for Mississippi and Vermont, which do not use retail food-delivery systems. 
23

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References

Betson, D. Impact of the WIC Program on the Infant Formula Market, Contractor and Cooperator 

Report No. 51, U.S. Department of Agriculture, Economic Research Service, January 2009. 

Available at: http://naldc.nal.usda.gov/catalog/32816 (accessed April 19, 2013).

California WIC Association. “Concerns about Infant Formula Marketing and Additives,” 

Unpublished paper, Sacramento, CA, April 2009. Available at: http://www.calwic.org/storage/

documents/federal/2009/formulamarketing.pdf (accessed April 18, 2013).

Centers for Disease Control and Prevention. Breastfeeding Among U.S. Children Born 2000-2010, 

CDC National Immunization Survey. Available at http://www.cdc.gov/breastfeeding/data/NIS_

data/index.htm (accessed August 20, 2013). 

Davis, D. “Bidding for WIC Infant Formula Contracts: Do Non-WIC Customers Subsidize WIC 

Customers?,” American Journal of Agricultural Economics (94:1), January 2012. Available at 

http://ajae.oxfordjournals.org/content/94/1/80.full (accessed March 15, 2013).

Hamilton, B., and P. Sutton. Recent Trends in Births and Fertility Rates Through June 2012, NCHS 

Health E-Stat, National Center for Health Statistics, Division of Vital Statistics, December 2012. 

Available at: http://www.cdc.gov/nchs/data/hestat/births_fertility_june_2012/births_june_2012.

html (accessed March 5, 2013).

Martin, J., B. Hamilton, S. Ventura, M. Osterman, E. Wilson, and T. Mathews. Births: Final Data 

for 2010, National Vital Statistics Reports (61:1), National Center for Health Statistics, August 

2012. Available at: http://www.cdc.gov/nchs/data/nvsr/nvsr61/nvsr61_01.pdf (accessed March 5, 

2013).

National WIC Association. NWA Position on Functional Ingredients, Washington, D.C., November 

2011. Available at: http://www.paramountcommunication.com/nwica/FunctionalIngredients.pdf

(accessed March 22, 2013).

Neuberger, Z. WIC Food Package Should Be Based on Science: Foods with New Functional 

Ingredients Should Be Provided Only If They Deliver Health or Nutritional Benefits, Center on 

Budget and Policy Priorities, Washington, D.C., June 2010. Available at: http://www.cbpp.org/

cms/?fa=view&id=3201 (accessed March 28, 2013).

Nielsen Company. Unpublished data provided to U.S. Department of Agriculture, Economic 

Research Service, New York, NY, 2008.

Oliveira, V., E. Frazao, and D. Smallwood. Rising Infant Formula Costs to the WIC Program: 

Recent Trends in Rebates and Wholesale Prices, ERR-93, U.S. Department of Agriculture, 

Economic Research Service, February 2010. Available at: http://www.ers.usda.gov/publications/

err-economic-research-report/err93.aspx#.UffkyKz8J8E(accessed January 17, 2013).

Oliveira, V., E. Frazao, and D. Smallwood. The Infant Formula Market: Consequences of a Change 

in the WIC Contract Brand, ERR-124, U.S. Department of Agriculture, Economic Research 

Service, August 2011. Available at: http://www.ers.usda.gov/publications/err-economic-researchreport/err124.aspx#.UfflBaz8J8E (accessed January 15, 2013). 
24

Trends in Infant Formula Rebate Contracts: Implications for the WIC Program, EIB-119

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Oliveira, V., M. Prell, D. Smallwood, and E. Frazao. WIC and the Retail Price of Infant Formula, Food 

Assistance and Nutrition Research Report No. 39-1, U.S. Department of Agriculture, Economic 

Research Service, June 2004. Available at: http://www.ers.usda.gov/publications/fanrr-food-assistance-nutrition-research-program/fanrr39-1.aspx#.UfflV6z8J8E (accessed January 15, 2013). 

U.S. Department of Agriculture, Food and Nutrition Service, Budget Division. Program Information 

Report (Keydata), U.S. Summary, FY 2012-FY 2013, September 2012, December 2012. Available 

at: http://www.fns.usda.gov/sites/default/files/datastatistics/september-2012.pdf (accessed 

January 24, 2013). 

U.S. Department of Agriculture, Office of Budget and Program Analysis. 2012 USDA Budget 

Explanatory Notes for Committee on Appropriations, Food and Nutrition Service. Available at:

http://www.obpa.usda.gov/FY12explan_notes.html (last modified May 23, 2013).

U.S. Department of Agriculture, Food and Nutrition Service, Office of Policy Support. Unpublished 

data from the 2010 WIC Participant and Program Characteristics Study provided to U.S. 

Department of Agriculture, Economic Research Service, April 2013. 

U.S. Department of Agriculture, Food and Nutrition Service, Office of Research and Analysis. WIC 

Participant and Program Characteristics, various years. Available at: http://www.fns.usda.gov/

ora/MENU/Published/WIC/WIC.htm (accessed May 29, 2013).

U.S. Department of Health and Human Services, U.S. Food and Drug Administration. “Questions & 

Answers for Consumers Concerning Infant Formula,” Updated 12/14/2012. Available at: http://

www.fda.gov/Food/FoodborneIllnessContaminants/PeopleAtRisk/ucm108079.htm (accessed 

December 27, 2012). 

U.S. Department of Labor, Bureau of Labor Statistics. Consumer Price Index for All Urban 

Consumers for All Items. Available at http://www.bls.gov/cpi/ (accessed May 20, 2013). 

U.S. Government Accountability Office. Food Assistance: Information on WIC Sole-Source Rebates 

and Infant Formula Prices, GAO/RCED-98-146, May 1998. Available at: http://www.gao.gov/

products/RCED-98-146 (accessed January 28, 2013). 

U.S. Government Accountability Office. Food Assistance: FNS Could Take Additional Steps to 

Contain WIC Infant Formula Costs, GAO-06-380, March 2006. Available at: http://www.gao.

gov/products/GAO-06-380 (accessed January 9, 2012). 
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Appendix A—Start Dates of Current and Previous Rebate 

Contracts by State 

State

Start date of 

current contract

Start date of 

previous contract

Alabama 10/1/2012 10/1/2007

Arkansas, New Mexico, North Carolina 10/1/2012 10/1/2009

California 8/1/2012 8/1/2007

Colorado 1/1/2013 1/1/2008

Florida 2/1/2008 2/1/2002

Georgia 10/1/2010 10/1/2006

Illinois 2/1/2013 2/1/2008

Indiana 10/1/2011 10/1/2007

Kentucky 7/1/2011 7/1/2006

Louisiana 10/1/2012 10/1/2007

Michigan 11/1/2011 11/1/2006

Missouri, Nebraska, South Dakota 10/1/2009 10/1/2003

NEATO 10/1/2011 10/1/2006

New Jersey 10/1/2012 10/1/2007

New York 7/1/2011 7/1/2006

North Dakota 7/1/2009 7/1/2005

Ohio 10/1/2011 10/1/2006

Oklahoma 10/1/2008 10/1/2005

Pennsylvania 10/1/2008 10/1/2003

South Carolina 4/1/2010 4/7/2005

Tennessee 7/1/2009 7/1/2004

Texas, Minnesota, Iowa 10/1/2012 10/1/2007

Virginia 7/1/2011 7/1/2006

Wisconsin 1/1/2011 1/1/2006

WSCA 10/1/2012 10/1/2007

Note: Current contracts are those in effect in February 2013. Previous contracts are those that were in effect 

immediately prior to the current contract. NEATO (New England and Tribal Organization) and WSCA (Western States 

Contracting Alliance) are multistate alliances. For a list of members of each alliance, see box, “Multistate Alliances.”

Source: USDA, Economic Research Service calculations based on USDA, Food and Nutrition Service data. 
continued—

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Appendix B—Average monthly number of infants in 

FY 2012 participating in WIC in areas included in study, 

by breastfeeding status

Geographic State 

agencies and 

multistate alliances 

U.S. Territories and Indian 

Tribal Organizations (ITO) 

included in multistate alliances Total infants 

Fully 

formula fed

Partially 

formula fed

 Weighted 

average of 

formula-fed 

infants 

AL 35,531 30,169 3,533 31,935 

AR, NM, NC (total) 103,352 81,755 11,266 87,388 

 AR 24,500 21,713 919 22,173 

 NM 14,271 10,869 1,070 11,404 

 NC 64,447 49,079 9,258 53,708 

Eastern Cherokee, NC (ITO) 134 94 19 103 

CA 289,604 178,805 50,223 203,916 

CO 23,254 16,817 2,303 17,968 

GA 70,786 53,356 13,088 59,900 

IA, MN, TX (total) 272,967 160,454 85,536 203,223 

 IA 16,606 12,713 1,866 13,646 

 MN 27,814 18,513 5,123 21,075 

 TX 227,473 128,285 78,506 167,538 

Choctaw Nation, OK (ITO) 1,074 943 43 964 

IL 76,159 58,338 12,507 64,591 

IN 40,689 33,860 3,452 35,586 

KY 35,221 25,230 6,941 28,700 

LA 38,643 35,278 1,985 36,271 

MI 63,707 50,635 5,713 53,492 

MO, NE, SD (total) 52,022 40,560 4,750 42,935 

 MO 37,635 29,792 2,816 31,200 

 NE 9,708 7,151 1,492 7,897 

 SD 4,679 3,617 443 3,838 

NEATO (total) 59,383 42,361 10,158 47,441 

 CT 14,125 10,167 3,009 11,671 

 ME 5,658 4,328 197 4,426 

 MA 27,932 18,358 6,042 21,379 

 NH 4,124 3,169 274 3,306 

 RI 5,561 4,561 571 4,846 

Cherokee Nation, OK (ITO) 1,941 1,743 59 1,772 

Seneca Nation, NY (ITO) 42 36 6 39 

NJ 38,524 24,011 10,394 29,208 

NY 119,293 69,910 40,493 90,157 

ND 3,101 2,213 342 2,384 

OH 69,004 60,622 2,044 61,643 

SC 34,826 29,723 2,708 31,076 
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Geographic State 

agencies and 

multistate alliances 

U.S. Territories and Indian 

Tribal Organizations (ITO) 

included in multistate alliances Total infants 

Fully 

formula fed

Partially 

formula fed

 Weighted 

average of 

formula-fed 

infants 

TN 43,750 35,621 4,620 37,930 

VA 39,094 30,605 5,202 33,206 

WI 27,593 21,602 2,310 22,757 

WSCA (total) 254,310 172,468 37,534 191,235 

 AK 5,952 3,532 869 3,966 

 AZ 42,196 29,576 7,587 33,369 

 DE 5,570 4,838 378 5,027 

 HI 8,591 5,830 968 6,314 

 ID 9,925 6,020 808 6,424 

 KS 18,146 13,742 2,104 14,794 

 MD 35,372 23,691 8,182 27,782 

 MT 4,679 3,218 360 3,398 

 NV 17,654 12,856 3,067 14,390 

 OR 23,595 14,535 2,201 15,636 

 UT 15,229 9,412 1,811 10,317 

 WA 38,163 23,495 5,109 26,050 

 DC 4,783 3,582 938 4,051 

 WV 11,536 9,901 451 10,127 

 WY 2,898 2,076 182 2,167 

American Samoa 1,116 408 639 727 

Northern Marianas 721 461 185 554 

Guam 1,863 1,280 282 1,421 

Virgin Islands 1,161 439 658 768 

Inter-Tribal Council, NV (ITO) 286 214 30 229 

Inter-Tribal Council, AZ (ITO) 2,441 1,916 185 2,008 

Navajo Nation, AZ (ITO) 2,433 1,447 538 1,716 

Total infants in States covered in study 1,709,813 1,254,391 317,102 1,412,942

Note: Weighted average of formula-fed infants is equal to the sum of the number of fully formula-fed infants and half of the number 

of partially formula-fed infants. NEATO (New England and Tribal Organization) and WSCA (Western States Contracting Alliance) 

are multistate alliances. For a list of members of each alliance, see box, “Multistate Alliances.”

Source: Preliminary data on monthly number of partially breastfed infants, fully formula-fed infants, and total infants in FY 2012 

from USDA, Food and Nutrition Service data available at http://www.fns.usda.gov/pd/wicmain.htm (accessed 2/13/2013).