Economic

Research

Service

Economic

Research 

Report 

Number 171

August 2014

United States Department of Agriculture

Cost Containment in the WIC 

Program: Vendor Peer Groups 

and Reimbursement Rates

Tina L. Saitone, Richard J. Sexton, and Richard J. Volpe
Economic Research Service 

www.ers.usda.gov

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Saitone, Tina L., Sexton, Richard J., and Richard J. Volpe. Cost Containment in the WIC 

Program: Vendor Peer Groups and Reimbursement Rates, ERR-171, U.S. Department of 

Agriculture, Economic Research Service, August 2014.

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United States Department of Agriculture

Economic 

Research 

Service

Economic

Research 

Report 

Number 171

August 2014

Abstract

Cost containment is a concern for the Special Supplemental Nutrition Program for Women, 

Infants, and Children (WIC), a Federal food assistance program providing participants with 

key foods and beverages. Since WIC is not an entitlement program, the amount of aid available 

to cover those who are eligible depends on fixed budget appropriations and WIC agency cost 

containment. This report examines the extent to which cost containment might be improved 

through changes in the regulations governing WIC vendors and allowable reimbursement levels 

for foods covered by the program. Using California, the largest U.S. WIC program, as a case 

study, we analyze data on WIC redemptions—that is, reimbursements to vendors for items 

bought by WIC participants—and determine the potential for cost savings through changes to 

the cost-containment practices. Smaller vendors, often with higher operating and procurement 

costs, are more likely to charge higher prices for WIC products than larger vendors. However, 

these small vendors comprise only a small percentage of total WIC redemptions. Policies 

intended to reduce maximum allowable WIC reimbursement rates would have little to no effect 

on most standard-size supermarkets, where the majority of WIC transactions take place. 

Keywords: WIC program, cost containment, vendor peer grouping, food assistance

Acknowledgments

The authors thank Zoe Neuberger, Center on Budget and Policy Priorities; David Davis, South 

Dakota State University; and Chan Chanhatasilpa, USDA, Food and Nutrition Service, for 

their reviews. Thanks to colleagues Victor Oliveira, Elizabeth Frazão, and Christian Gregory, 

USDA/ERS Food Economics Division, for useful background on WIC and food assistance, and 

to Timothy Park and Laura Tiehen for their reviews. Finally, we thank Courtney Knauth for 

editing and Curtia Taylor for design and layout, both in USDA/ERS.

Tina L. Saitone, Richard J. Sexton, and Richard J. Volpe

Cost Containment in the WIC 

Program: Vendor Peer Groups 

and Reimbursement Rates
Contents

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

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

FNS Regulations That Govern WIC Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Economic Incentives in the California WIC Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Vendor Incentives Under WIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

WIC Cost Containment Strategies: Vendor Peer Groups and Maximum Allowable 

Redemption Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

The A-50 Peer Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Non-A-50 Vendor Peer Groups. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Vendor Characteristics and WIC Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Do the MARR Help To Contain Costs? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Estimating the Effect of Vendor Peer Groups on FI Redemption Rates . . . . . . . . . . . . . . . . . 19

Simulating Potential Savings Through Changes to Cost Containment . . . . . . . . . . . . . . . . . . 23

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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gov/publications/erreconomic-researchreport/err171

Economic

Research

Service

Economic

Research 

Report 

Number 171

August 2014

United States Department of Agriculture

Cost Containment in the WIC 

Program: Vendor Peer Groups 

and Reimbursement Rates

Tina L. Saitone, Richard J. Sexton, and Richard J. Volpe

Tina L. Saitone, Richard J. Sexton, and Richard J. Volpe

Cost Containment in the WIC 

Program: Vendor Peer Groups and 

Reimbursement Rates

What Is the Issue?

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

is the third largest Federal food assistance program, serving approximately 53 percent 

of all infants born in the United States. WIC participants receive food instruments (FIs), 

or vouchers, redeemable for set quantities/categories of food, regardless of the prices 

charged by authorized vendors (stores) and without cost to the participants. Vendors are 

then reimbursed for the purchase. There is concern that WIC participants lack incentive 

to be price-conscious in their purchases using FIs. In addition, although some authorized 

vendors charge reasonable prices to attract non-WIC customers, vendors with a high share 

of WIC customers have little incentive to compete on price.

For cost-containment purposes, Federal regulations require that WIC vendors be organized into peer groups. WIC then sets price ceilings, called maximum allowable redemption rates (MARR), by peer group for each FI the group redeems. This report examines 

whether cost containment can be improved by adjustments to either the vendor peer 

grouping or to how the MARR are set. Using California (the largest U.S. WIC program) 

as a case study, we analyze data on WIC redemptions (reimbursements to vendors for 

items bought by WIC participants) and determine the potential for cost savings through 

changes to the cost-containment practices employed by agencies. 

What Did the Study Find?

Modest cost-containment improvements can be achieved through changes to the peergrouping structure and to the way that MARR (maximum redemption rates) are calculated. However, adopting these changes will not significantly alter the costs per WIC 

participant or help to contain program costs for WIC-authorized foods. 

August 2014
www.ers.usda.gov

In California, vendor peer groups have been determined by two factors: geographic location and cash 

register count, a proxy for vendor (store) size. The analysis of California’s geographic peer grouping 

demonstrates that geographic location is not an important determinant of pricing for WIC products. 

However, based on vendor (store) size, there are large differences in pricing and program costs. Smaller 

vendors not only charge much higher prices on average than larger vendors, but there is also far greater 

disparity of prices and FI redemption values among small vendors.

We conducted two simulation analyses to gauge the magnitude of program cost savings from two costcontainment modifications. The first estimated the savings that could be achieved if small vendors were 

induced to lower prices comparable to the larger vendors. In this simulation, program cost savings were 

quite substantial within each of the FIs considered, particularly for the milk-based infant powder formula 

FI (savings were 34.5 percent). However, since these small vendors represent only a small percentage of 

total WIC redemptions, this would result in overall program cost savings of only 6.3 percent.

The second simulation focused on eliminating the vendors in each peer group who charged the highest 

redemption values (prices)—either the highest 5 or 10 percent. This simulation yielded savings ranging 

from 1 to 3 percent per FI. Savings are not larger because most vendors with the highest FI redemption 

values are small, and again, these stores on average, do not redeem large numbers of WIC FIs, so removing 

them from the program yields only modest cost savings. Eliminating vendors as a cost-containment 

measure may also limit some participants’ access to WIC benefits, and benefits from program savings need 

to be weighed against the costs of reduced access.

Greater cost savings may be achievable by focusing on the eligibility of products authorized for purchase 

under a given FI. The California WIC program allows FIs to be exchanged for combinations of products, 

which makes cost containment difficult under the current system of peer groups and MARR. More significant savings may be gained by eliminating some of the more expensive products, brands, or sizes authorized by the California WIC Program, a subject for further research on cost containment. 

How Was the Study Conducted?

The researchers used a dataset consisting of all WIC redemptions made under the California WIC Program 

for the 29-month period from October 2009 to February 2012. Each observation identifies the vendor, date, 

FI number, and the amount the vendor requested for reimbursement. This allowed us to observe the prices 

in the WIC Program as they vary by FI and vendor. The central component of our analysis was a regression model of redemption rates as a function of number of cash registers operated by a vendor and county 

fixed effects, which identify the impact of store size on redemption values in the program. Using these 

results, we conducted the two simulation exercises discussed above to measure the potential savings from 

improved program cost containment.
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Introduction

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

food access, health care, and nutrition education for low-income, pregnant, and postpartum women; 

infants; and children up to 5 years of age. It is the third largest U.S. food assistance program as 

measured by expenditure, with Fiscal Year (FY) 2012 spending totaling $6.8 billion.1 An average of 

8.9 million people per month participated in the WIC Program in FY 2012, consisting of 53 percent 

children ages 1–4, 24 percent infants, and 23 percent women (U.S. Department of Agriculture, 

2012). The program typically serves about 53 percent of all infants born in the United States and 

about a quarter of children ages 1–4 (Hansen and Oliveira, 2009). WIC participants receive food 

instruments (FIs) that are exchanged for specific food products, usually a combination of products, 

at authorized program vendors and without cost to the participants.

The WIC Program began in 1972 with an amendment to the Child Nutrition Act and has continued 

with subsequent reauthorizations of the act. The U.S. Department of Agriculture (USDA), Food and 

Nutrition Service (FNS) administers U.S. food assistance programs, including WIC. Given that WIC 

is a discretionary grant program and not an entitlement, the number of participants served each year 

depends on congressional appropriations and operating costs.2 Hence, for program administrators, 

cost containment is central to determining total participant access to program benefits and has been 

a topic of discussion, analysis, and debate throughout WIC’s history.3 Recently, operating costs have 

been rising. The number of WIC participants fell from 2010 to 2011, but the cost per participant 

increased 12 percent and overall WIC expenditures increased 7.6 percent (Oliveira, 2012)4. Costs in 

the WIC program include food costs, which are incurred when States reimburse vendors for foods 

sold in the program, as well as nutrition services and administrative costs. The focus of this study is 

entirely on food costs. 

1 The largest program by far is the Supplemental Nutrition Assistance Program (SNAP). SNAP accounted for 72 

percent of all Federal food and nutrition assistance spending in FY 2010 (U.S. Department of Agriculture, 2012). The 

second largest program is the National School Lunch Program. 

2 The WIC Program is 100 percent federally funded, meaning that it does not require matching funds from the States 

(Oliveira and Frazao, 2009). 

3 See, for example, Montgomery and Splett, 1997; Davis and Leibtag, 2005; Ludwig and Miller, 2005; Davis, 2007; 

and Oliveira and Frazao, 2009.

4 Due to a change in the accounting procedure for manufacturer rebates, the WIC program costs for the final quarter 

of fiscal year 2011 are overstated somewhat. Manufacturer rebates are also a cost-containment mechanism for the WIC 

program, and rebates for this quarter were processed in fiscal year 2012. This transition accounts for a portion of the 

increased program costs realized between 2010 and 2011. For more details see http://www.fns.usda.gov/pd/wic-program.

Tina L. Saitone, Richard J. Sexton, and Richard J. Volpe

Cost Containment in the WIC 

Program: Vendor Peer Groups and 

Reimbursement Rates
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This study focuses on the California WIC Program as a case study for investigating potential costcontainment mechanisms.5 The program is the largest in the United States, with over $1.15 billion 

allocated to the State for WIC in 2012 (U.S. Department of Agriculture, 2012). California was 

home to 16.1 percent of total WIC participants in 2010 (Abt Associates, 2011). Cost-containment 

issues surfaced for the California WIC Program during the 2009-2012 period of our analysis due 

to an increase in the number of small vendors (those with one to four cash registers) operating in 

the program and in the market share of total WIC transactions handled by these vendors. Average 

redemption values, which for non-WIC customers are simply shelf prices, charged by these vendors 

for FIs from WIC participants also rose throughout this period.6 Figure 1 illustrates these trends in 

market share and redemption value for one-to-four-register vendors for FI 6012, which covers milk, 

5 California WIC is one of 90 WIC agencies that receive grants based on congressional appropriations. The 90 WIC 

agencies include the 50 States, the District of Columbia, Guam, the American Virgin Islands, American Samoa, the 

Commonwealth of Puerto Rico, the Northern Mariana Islands, and 34 Indian tribal organizations (Abt Associates, 2011). 

6 Costs per participant for the California WIC Program peaked in 2011 at a $52.31 monthly average per participant and 

fell to $46.05 in 2013 (USDA, 2013), no doubt in large part due to the interim regulations imposed in May 2012. Nationally, the WIC program made changes to the manufacturer rebates that reduced the average real cost of infant formula by 

43 percent between 2008 and 2013 (Oliveira et al., 2013). 

FI = Food instrument presented by WIC participants to vendors.

MARR = Maximum allowable redemption rate that vendors can charge.

Source: California Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) and authors’ 

calculations.

Figure 1

Market share and redemption value for 1-4 cash register stores (FI 6012)

Average redeemed value (1-4 reg stores) Share of redemptions at 1-4 register vendors

MARR rate time periods (Sept. 2009 - Feb 2012)

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

$16.00

$16.50

$17.00

$17.50

$18.00

$18.50

$19.00

$19.50

$20.00

$20.50

$21.00

$21.50

0 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60

Average redeemed value (1-4 regs)

Share of FI redeemed (1-4 regs)
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eggs, cheese, and beans or peanut butter and was the most frequently redeemed food instrument in 

California during this period. The increase in redemption values for these vendors was halted in 

May 2012 when interim regulations were imposed to change the way maximum redemption values 

were computed for one-to-four-register vendors.7

In this study, we explore the economic relationships in the California WIC Program: vendors, 

program costs, and the foods authorized for redemption under the program. The centerpiece of 

our analysis is a statistical model of FI redemption values and a series of simulations that consider 

various approaches to improving cost containment in the California Program. Because all State WIC 

Programs operate under a common set of FNS regulations (Code of Federal Regulations, title 7, sec. 

246), our results should be relevant for programs outside of California.

7 Direct distribution delivery systems involve participants or their representatives picking up authorized supplemental 

foods from storage facilities operated by the State or local WIC Program. 
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FNS Regulations That Govern WIC Agencies

FNS regulations set forth standards regarding participant eligibility, the authorization of food products, and the sale and redemption of the allowable foods. Oliveira and Frazao (2009) provide a 

thorough background on many of these regulations, along with related economic research and policy 

implications. The regulations specify seven “food packages” that must be made available under the 

program, with eligibility for each package determined by participant’s age in the case of infants and 

children; pregnancy status (pregnant, postpartum) and breastfeeding status (e.g., partially breastfeeding, fully breast feeding) in the case of women; and the presence of special health conditions in 

the case of women, infant, or child participants.

The regulations also specify criteria for delivery systems for the supplemental foods provided by the 

program. Although home delivery and direct distribution systems are authorized by FNS, the most 

common distribution system nationally is through authorized retail vendors.8 Most States, including 

California, use a retail delivery system exclusively. FNS requires that retail delivery systems use 

FI and cash-value vouchers (CVVs) (redeemable for fruits and vegetables) that contain the supplemental foods authorized by the FI or voucher, the first and last date the FI or voucher may be used, 

and the purchase price.9 Prices for food products sold through the WIC Program must be the same 

as the prices charged to non-WIC customers. As discussed later, this means that retailers with a large 

share of non-WIC customers are more likely to be competitive in prices for WIC-eligible products.

Further, the FNS regulations specify criteria that State WIC agencies must apply in authorizing 

vendors for the WIC Program:

The State agency must authorize an appropriate number and distribution of vendors in order 

to ensure the lowest practicable food prices consistent with adequate participant access to 

supplemental foods and to ensure effective State agency management, oversight, and review 

of its authorized vendors (Code of Federal Regulations, title 7, sec. 246.12.3). 

Vendors are authorized on a store-by-store basis. The FNS regulations specifically address vendors 

that derive more than 50 percent of their annual food sales revenue from WIC FIs or CVVs. These 

so-called “A-50” vendors have emerged primarily or solely to sell WIC food products to program 

participants. 

To address concerns about cost containment, FNS regulations specify procedures that State agencies 

must implement to promote competitive pricing among authorized vendors. Specifically, the regulations require that all States using a retail delivery system establish a vendor peer group system and 

set “distinct competitive price criteria and allowable reimbursement levels for each peer group” (Code 

of Federal Regulations, title 7, sec. 246.12.4). In practice, State agencies typically meet this requirement by establishing maximum allowable redemption rates for each FI as well as for each peer group. 

These can be thought of as price ceilings for WIC-eligible foods, typically calculated on a rolling 

basis using statistical functions that rely on average prices across States or vendor peer groups.

8 Vermont and Mississippi are the only States currently using a direct distribution system (U.S. Department of Agriculture, 2013).

9 CVVs are similar to SNAP benefits in that the redemption does not depend on product size or brand, but on price. 

WIC consumers can stretch the values of CVVs by seeking the lowest priced eligible products. CVVs are not a focus of 

this study.
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Economic Incentives in the California WIC Program

Through the WIC Program, participants receive authorized FIs at no direct cost, as well as CVVs 

redeemable for fruits and vegetables. WIC FIs are redeemable for set quantities of food, regardless 

of the price charged by retailers. In this respect, WIC operates quite differently than SNAP, where 

participants receive a fixed-dollar voucher. This feature of the WIC Program is the administrative 

incentive for cost-containment efforts. Other factors constant, participants lack the incentive to shop 

at vendors offering the lowest prices for FIs. Moreover, when FIs allow the purchase of different 

products, package sizes, and brands, as is often the case in California and other States, participants 

have no motivation to seek the best value among available items.10

Given that direct cost is not a consideration for WIC participants for foods acquired through FIs, 

the decision as to where to redeem FIs is likely determined by travel costs, convenience, and ease 

of purchasing. Major factors affecting travel costs are proximity of the vendor to a participant’s 

residence or another location the participant visits regularly (Solgaard and Hansen, 2003) and the 

opportunity to engage in one-stop shopping (i.e., to redeem FIs at a location where the participant 

does regular grocery shopping) (Messinger and Narasimhan, 1997; Fox and Sethuraman, 2010).

Particularly for participants in urban settings, who may not have access to an automobile, both 

convenience and comfort may be maximized by making purchases at small vendors that emphasize 

WIC Program sales in their business plans. Program personnel report that stores tend to locate near 

program participants’ homes or local WIC offices and to make the purchasing process easy and 

stress-free, ensuring that WIC-authorized products are easy to find and that checkout is convenient.11

Vendor Incentives Under WIC

Retail food stores generally find it profitable to participate in the WIC Program, reflected in the fact 

that over 5,500 vendors are authorized in California, including most stores of the leading retail food 

chains.12 WIC participants comprise a large share of sales for many products, especially formula and 

infant foods (Oliveira et al., 2010). Thus, retailers would forgo a significant share of the market for 

these products if they did not obtain WIC authorization, and they would risk losing the business of 

WIC participants entirely if the participants were unable to redeem FIs at their stores.

It is not clear how—if at all—WIC authorization may affect a retailer’s pricing strategy. This 

economic relationship has implications for both program cost containment and prices for non-WIC 

consumers (Davis, 2012). Because WIC participants receive the food products included in their FIs 

at no personal cost, the participants are perfectly price inelastic (price-insensitive) for the cost of 

those products. Holding other factors constant, the less elastic the demand for a seller’s product, the 

higher the markup over cost that the seller will charge. This theory, however, applies to an individual 

product, and even smaller vendors may sell thousands of different product codes (Levy et al., 1998; 

10 Some States require participants to purchase the least-cost brand for some of the product categories, most often 

milk, eggs, and cheese.

11 The California WIC-Authorized Food List Shopping Guide summarizes the process of making a purchase, which 

requires the participant to group the purchases by FI, inform the cashier that WIC FIs are being used, and sign the FI 

vouchers after the cashier has recorded the purchase price. This process might be rather stressful in a supermarket with 

long checkout lines. 

12 As of January 12, 2012, California had 5,581 authorized WIC Program vendors.
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Dimitri et al., 2003). Many of the products contained in WIC FIs are staple foods (e.g., milk, eggs, 

cheese, and breads) that steer traffic to a store, so vendors may elect not to impose an additional 

markup due to a product’s WIC status, even though profit maximization for each product would 

dictate that they should. In fact, perishable staples such as many of the foods that comprise WIC FIs 

are often promoted heavily or even sold below cost in order to attract customers (Lal and Matutes, 

1994; Chevalier et al., 2003). 

A wealth of research on food retailing has examined the circumstances under which food prices tend 

to rise. Food prices are typically higher in more concentrated markets or those with fewer retailers 

(Cotterill, 1986; Yu and Connor, 2002). Additionally, prices for comparable items have been 

found to be higher in small stores situated in dense urban environments or rural areas than in large 

conventional supermarkets (Liese et al., 2007; Bustillos et al., 2008). In terms of retailer incentives, 

retailers are more likely to increase margins—and by extension, prices—as their share of captive or 

loyal consumers increases. This is particularly true in the case of WIC customers, who are insensitive to prices for WIC-eligible foods. Considering both participant and vendor incentives, it stands to 

reason that concerns about cost containment stemming from very high prices for WIC FIs are likely 

to be most warranted for those stores with a high volume of sales to WIC participants. However, as 

noted above, these stores tend to be small. 
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WIC Cost-Containment Strategies: Vendor Peer Groups 

and Maximum Allowable Redemption Rates 

Because the incentives of participants and vendors in the WIC Program are not necessarily aligned 

with the goals of cost containment and maximization of program participation, it is important that 

the cost-containment strategies embedded in the program work effectively. The program engages in 

a number of cost-containment strategies, and some have proven to be quite effective. For example, 

changes in the use of manufacturer rebates reduced national program costs for infant formula by 

$107 million between 2008 and 2013 (Oliveira et al., 2013). However, as noted, total program costs 

in 2012 were over $6.8 billion, and these savings are small in percentage terms. The focus of our 

report is on the program guidelines governing vendors. FNS requires that WIC agencies using 

commercial vendors establish maximum allowable reimbursement rates (MARR), which effectively 

serve as a price ceiling for FIs. Vendors are fully reimbursed for the sale of all FIs up to the MARR, 

but not beyond. Due to the various store- and market-specific factors that can influence retail food 

prices, FNS regulations stipulate that MARR be set based on vendor peer groups to establish accurate bases for comparison. 

Kirlin et al. (2003) investigated the effectiveness of cost containment in WIC, based on a case study 

of six States, including California.13 The report examined a number of program features, including 

competitive pricing policies (i.e., vendor peer groups and MARR), but also restrictions on package 

size or FI components. Much has changed within the WIC Program since Kirlin’s report was 

published, but the authors noted two salient points with respect to competitive pricing policies. First, 

they found no evidence that these policies adversely impact WIC consumers in terms of food access, 

store choice, or food choice. Second, due to data limitations, their study was unable to determine 

what impact, if any, these policies had on food package costs and therefore on cost containment. 

Thus, the establishment of vendor peer groups and the setting of MARR constitute a promising area 

for research on WIC cost containment.

The A-50 Peer Group

All authorized WIC vendors deriving more than 50 percent of their annual food sales revenue from 

WIC redemption are categorized into the Above-50 (A-50) peer group. As of 2012, A-50 stores 

accounted for 902 of the more than 5,500 authorized WIC vendors in California (table 1). A-50 

vendors are mostly small relative to other food retailer peer groups. The majority (481) operate 1 

register, while 270 stores operate 2 registers and 89 stores operate 3 registers. Only 24 of the A-50 

vendors in the State operate 5 or more cash registers. A-50 vendors collectively are important to the 

California WIC Program, accounting for 37 percent of total program food sales from October 2009 

through February 2012, the largest share of any single vendor peer group. Given that A-50 vendors 

comprised less than 20 percent of all California WIC vendors during the study period, their collective market share indicates that WIC participants patronize the A-50 stores heavily relative to other 

vendors across the State.

Federal regulations require State WIC agencies to ensure that participant redemption of FIs at A-50 

vendors does not result in total higher food costs than if participants redeemed their FIs at other 

13 The other States included in the case study that utilized competitive pricing policies were Connecticut, Oklahoma, 

and Texas. 
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vendors that do not meet the above-50 percent criterion. Thus, the MARR for A-50 vendors in 

California are set on a bi-weekly basis at the statewide average of redemption values of the FI for 

all non-A-50 vendors computed over a 12-week moving average. Most A-50 vendors redeem FIs for 

values very close to the MARR. For this reason, it is necessary to consider A-50 vendors in conjunction with non-A-50 vendors when examining cost containment in the WIC Program. Because prices 

charged for redemptions by the non-A-50 vendors determine the A-50 vendor MARR, effective cost 

containment for the non-A-50 vendors implies that costs will be constrained for A-50 vendors as 

well. 

Non-A-50 Vendor Peer Groups

FNS regulations specify that at least two criteria must be used for establishing peer groups for 

WIC-authorized vendors deriving less than 50 percent of their sales from WIC redemption. One 

must be geography, unless an exemption is approved by FNS. California has established three 

geographic peer groups that are intended to represent high-, medium-, and low-priced counties (fig. 

2).14

14 The State’s rationale for geographic grouping of counties is set forth in California WIC Program (2006). Briefly, 

the State began with groupings of counties contained in Economic Areas constructed by the U.S. Bureau of Economic 

Analysis. Economic Area 97 contained 11 counties in Southern California and was adopted as Geographic Area (“Geo”) 

1 for construction of vendor peer groups. Economic Area 146 contained 22 counties, including the San Francisco Bay 

Area and the Central and North coast, and these counties were designated as Geo 2. All other counties were combined 

into Geo 3. At the time these designations were made, Geo 1 was considered to have the lowest prices and Geo 2 the 

highest among the three geographic designations.

Table 1

California-authorized vendors by number of cash registers, Jan. 2012

Registers Geo 1 Geo 2 Geo 3 Total

1 232 88 115 435

2 428 213 274 915

3 159 79 96 334

4 108 76 61 245

5 69 37 61 167

6 114 23 42 179

7 119 31 26 176

8 119 39 29 187

9 130 36 34 200

10+ 920 491 430 1,841

A-50 902

Total 5,581

Geo=Geographic Area. Geo 1 contains Imperial, Inyo, Kern, Los Angeles, Mono, Orange, Riverside, San Bernardino, 

San Luis Obispo, Santa Barbara, and Ventura counties. Geo 2 contains Alameda, Calaveras, Contra Costa, Del Norte, 

Humboldt, Lake, Marin, Mendocino, Merced, Monterey, Napa, San Benito, San Francisco, San Joaquin, San Mateo, Santa 

Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Trinity, and Tuolumne counties. Geo 3 contains Alpine, Amador, Butte, 

Colusa, El Dorado, Fresno, Glenn, Kings, Lassen, Madera, Mariposa, Modoc, Nevada, Placer, Plumas, Sacramento, San 

Diego, Shasta, Sierra, Siskiyou, Sutter, Tehama, Tulare, Yolo, and Yuba counties. 

Source: California Special Supplemental Nutrition Program for Women, Infants, and Children (WIC).
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Based in part on recommendations in a consultancy report prepared by Burger, Carroll, & 

Associates Inc. (2006), California chose to use the number of cash registers operated by a vendor (in 

essence, a proxy for store size and sales volume) as its second criterion for peer grouping. California 

has utilized 5 vendor groupings based upon number of registers—1-2, 3-4, 5-6, 7-9, and 10 and 

above. Thus, the California WIC Program operates with 16 peer groups, 15 (5 x 3) register-geography combinations, and the A-50 peer group. 

The non-A-50 peer groups account for 63 percent of total WIC food sales (table 2). Notably, the 

1-2 and 3-4 register vendors, which are the focus of ongoing cost-containment concerns due to the 

WIC incentive structure, collectively comprised only about 15 percent of the value of redemptions 

over the 29-month period of the data. Large supermarkets, those operating 10 or more registers, 

accounted for 31 percent of total WIC redemptions. These conventional grocery stores are likely to 

have lower shares of WIC consumers than other authorized WIC vendors.

On a biweekly basis, the California WIC Program computes a MARR for each of the 16 peer 

groups. Any requested FI redemption value at or below its MARR will be paid by the State. Prior to 

May 25, 2012, the MARR for each FI for the 15 non-A-50 peer groups was set by a formula based 

upon redemptions of that FI made by vendors in that peer group over a rolling 12-week average.15 

Specifically, the average and standard deviation of redemption values for the FI were computed over 

the prior 12 weeks, and the MARR was set at the average redemption value, X, plus a tolerance 

factor equal to the standard deviation of the redemption values, σ , times a constant, c, determined 

by the relative variability of redemption values for the FI charged by vendors with 10 or more registers in the same geographic area.

15 The MARR for most FIs remained frozen until January 2010, at which point the MARR were manually adjusted 

based on 12 weeks of redemption data. Beginning in June 2010, the automated MARR calculation was used. Whether the 

calculation was run manually or on an automated basis, the same procedure was used to determine the MARR. 

Note: Legend box shows peer group names. 

Source: California Special Supplemental Nutrition Program for Women, Infants, and Children (WIC).

Figure 2

Geographic vendor peer groups

WIC GEO #1

WIC GEO #2

WIC GEO #3
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California measured relative variability using the coefficient of variation (CV) of the redemption 

values for the FI, which is the standard deviation of redemption values divided by the mean redemption value. The greater the CV, the larger is the constant factor applied to the standard deviation, 

based on the rationale that FIs with more variable redemption values, (e.g., due to greater participant 

choice) require more tolerance in establishing the MARR. Thus, for FI j in peer group i in time 

period t, the MARR was given by 

(1) MMMMMMMMtt

jj,ii = XXtt~12jj,ii + cctt~12jj,10+

σσtt~12

jj,ii .

The subscript t~12 denotes the use of the 12-week rolling average, and the superscript 10+ denotes 

that c is based upon the CV for 10+ register stores in the same geographic region. Currently, the 

tolerance coefficients range from 1.5 to 3.0.16 Note that under this rolling-average approach to 

constructing the MARR, high redemption values requested by some vendors cause the MARR to 

increase in future periods, opening the door to still higher prices by increasing both the mean and 

standard deviation of redemption values.

This system of constructing vendor peer groups and establishing the MARR for each FI is codified in Federal regulations as a primary cost-containment strategy for the WIC Program. We now 

consider whether changes to this system may improve cost containment by reducing the redemption 

values of FIs and thus lowering costs per participant. 

16 Since May 25, 2012, the formula in equation (1) and the respective tolerance coefficients apply only to the nine 

vendor peer groups containing stores with five or more registers because the decision was made to remove, on an interim 

basis, 1-2 and 3-4 register stores from the MARR-determination process summarized in equation (1). Effective May 25, 

2012, 1-2 (3-4) register stores have a MARR set for each FI at 15 percent (11 percent) above the average redemption value 

charged for that FI by stores with five or more registers in their geographic region. 

Table 2

Number and value of California WIC FIs redeemed by cash register peer group, Oct. 2009 – 

Feb. 2012

Register group

Number of FIs 

redeemed1

Value ($) of FIs 

redeemed1

Percent of total value of 

FIs redeemed

A-50 Vendors 51,638,123 956,792,684.88 37.0

1-2 Registers 9,677,149 277,222,603.58 10.7

3-4 Registers 5,744,937 121,740,696.55 4.7

5-6 Registers 7,432,990 128,569,514.80 5.0

7-9 Registers 17,951,286 295,549,773.86 11.4

10+ Registers 50,731,895 808,884,544.80 31.2

Total 143,176,380 2,588,759,818.47 100.0

1The statistics on FI (Food Instrument) redemption include cash value vouchers for fresh produce.

Source: California Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) and author calculations.
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Vendor Characteristics and WIC Redemptions

Our dataset consists of all FI and CVV redemptions made under the California WIC Program for 

the 29-month period from October 2009 to February 2012. Table 3 describes the foods contained in 

the most frequently redeemed FIs in California. Each month of redemption data contains approximately 5 million observations, resulting in approximately 150 million observations in total over 

the 29-month period. The variables in the redemption data can be divided into three categories: 

(1) FI identification and information, (2) vendor identification and information, and (3) redemption 

information.

Table 3

Description of food contents for FIs included in the analysis

FI Description FI Description

1008 1 (12.5 OZ ) INFANT FORMULA

ENFAMIL PREMIUM LIPIL OR ENFAMIL 

PREMIUM INFANT 

POWDER ONLY

MUST BUY FULL QUANTITY

1093 10 (12.5 OZ ) INFANT FORMULA

ENFAMIL PREMIUM LIPIL OR 

ENFAMIL PREMIUM INFANT 

POWDER ONLY

MUST BUY FULL QUANTITY

1009 2 (12.5 OZ ) INFANT FORMULA

ENFAMIL PREMIUM LIPIL OR ENFAMIL 

PREMIUM INFANT 

POWDER ONLY

MUST BUY FULL QUANTITY

2110 15 (2.5 OZ) INFANT MEATS

1010 3 (12.5 OZ ) INFANT FORMULA

ENFAMIL PREMIUM LIPIL OR ENFAMIL 

PREMIUM INFANT 

POWDER ONLY

MUST BUY FULL QUANTITY

2111 16 (2.5 OZ) INFANT MEATS 

1011 4 (12.5 OZ ) INFANT FORMULA

ENFAMIL PREMIUM LIPIL OR ENFAMIL 

PREMIUM INFANT 

POWDER ONLY

MUST BUY FULL QUANTITY

6003 1 (GALLON) MILK, LOWER FAT 

1 (16 OZ) WHOLE GRAINS

36 OZ BREAKFAST CEREAL

1012 5 (12.5 OZ ) INFANT FORMULA

ENFAMIL PREMIUM LIPIL OR ENFAMIL 

PREMIUM INFANT 

POWDER ONLY

MUST BUY FULL QUANTITY

6011 1 (GALLON) MILK, LOWER FAT

1 (16 OZ) WHOLE GRAINS

2 (64 OZ) BOTTLED JUICE

 OR 2 (11.5 OR 12 OR 16 OZ) 

CONCENTRATE JUICE

1013 9 (12.5 OZ) INFANT FORMULA

ENFAMIL PREMIUM LIPIL OR ENFAMIL 

PREMIUM INFANT 

POWDER ONLY

MUST BUY FULL QUANTITY

6012 1 (GALLON) AND 1 (QUART) MILK, 

LOWER FAT

1 DOZEN EGGS

1 (16 OZ) CHEESE

1 (16 OZ) DRY BEANS, PEAS OR 

LENTILS

 OR 1 (16-18 OZ) PEANUT BUTTER 

1090 6 (12.5 OZ ) INFANT FORMULA

ENFAMIL PREMIUM LIPIL OR ENFAMIL 

PREMIUM INFANT 

POWDER ONLY

MUST BUY FULL QUANTITY

6145 18 (4 OZ) INFANT FRUITS AND 

VEGETABLES

 OR 18 (3.5 OZ) INFANT FRUITS AND 

VEGETABLES

1 (16 OZ) OR 2 (8 OZ) INFANT 

CEREAL

4 FRESH BANANAS

—continued
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Every observation in the data identifies both the serial number and food item code for each specific 

FI for which the vendor requested reimbursement. Further, the data provide information on the 

participant category (e.g., breastfeeding mother, pregnant woman, etc.) under which the FI is 

provided, as well as a brief description of the items contained in the FI. There were 239 active FIs 

and CVVs in the California WIC Program at the time of our study, but a few account for most 

redemptions and program expenditures (table 4). The 35 FI and CVVs for which we report sales 

figures collectively account for 91 percent of program food expenditures, and the largest 7 FI and 

CVVs collectively account for over 50 percent of program food expenditures. Infrequently redeemed 

FIs generally pertain to participants with special circumstances (e.g., homeless or with dietary 

restrictions based upon religious beliefs or special dietary needs, such as lactose intolerance).

With respect to vendor information, each observation provides a vendor identification number, 

contract identification number, Zip Code, county where the vendor is located, and the vendor peer 

group. From the vendor identification number, we merged vendor name and address information into 

the data to allow for the identification of specific retailers or chains of retailers. We then inferred the 

number of registers operated at each vendor location based upon location and peer-group information. Redemption information includes the MARR and the dollar amount redeemed.17

A simple examination of FI redemption values demonstrates how the vendor peer-grouping system 

can shape prices, and therefore program costs, for WIC. We provide box plot distributions of FI 

6012 redemption values (figs 3a-3c) by geographic areas and vendor peer groups. The red line in 

the box plot denotes the median of the distribution; the gray box denotes the 25th – 75th percentiles 

of the distribution); the lines emanating from the box (known as whiskers) extend to the lower 2.5 

percentile and upper 97.5 percentile (i.e., the 95-percent confidence interval of the distribution), 

and the dots extending beyond the whiskers denote outlier observations. There is little meaningful 

17 The data also contain a field known as “present amount,” which is populated when the vendor submits a redemption request that does not conform to program regulations. Requests made in excess of the MARR fall into this category. 

When this happens, the vendor must revise the original amount submitted to an amount that does not exceed the MARR 

before reimbursement can occur. 

Table 3

Description of food contents for FIs included in the analysis—continued

FI Description FI Description

1091 7 (12.5 OZ ) INFANT FORMULA

ENFAMIL PREMIUM LIPIL OR ENFAMIL 

PREMIUM INFANT 

POWDER ONLY

MUST BUY FULL QUANTITY

6232 2 (HALF GALLONS) MILK, LACTOSE 

FREE, LOWER FAT

1 (16 OZ) WHOLE GRAINS 

36 OZ BREAKFAST CEREAL

1092 8 (12.5 OZ ) INFANT FORMULA

ENFAMIL PREMIUM LIPIL OR ENFAMIL 

PREMIUM INFANT 

POWDER ONLY

MUST BUY FULL QUANTITY

6315 6 (QUARTS) OR 3 (HALF GALLONS) 

SOY

1 DOZEN EGGS

2 (14-16 OZ) TOFU

1 (16 OZ) DRY BEANS, PEAS OR 

LENTILS 

 OR 1 (16-18 OZ) PEANUT BUTTER

FI = Food Instrument.

Source: California Special Supplemental Nutrition Program for Women, Infants, and Children (WIC).
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Table 4

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

Food Instrument and Cash-Value Voucher (CVV) redemptions, by count and redemption 

value, Oct. 2009 – Feb. 2012

FI Code1 Food products2

Number of FIs 

redeemed3 (1,000s)

Value ($) of FIs 

redeemed3 (millions)

% of program 

redemption cost4

6012 LM, E, CH, DB/PB 23,154 334.96 12.94

6003 LM, WG, CE 16,065 261.82 23.05

6011 LM, WG, J 14,872 210.70 31.19

1011 F 2,515 175.21 37.96

1091 F 1,161 143.87 43.52

2004 CVV 20,887 122.75 48.26

1012 F 1,272 110.29 52.52

6000 WM, WG, CE 5,763 93.49 56.13

6001 WM, E, CH, DB/PB 5,923 86.16 59.46

6002 WM, WG, J 5,831 82.10 62.63

1010 F 1,484 77.38 65.62

2007 CVV 7,693 75.09 68.52

6107 LM, CE, DB 4,000 70.71 71.25

1013 F 446 70.04 73.96

6105 LM, WG, J 4,102 66.04 76.51

6106 LM, CE, J 2,342 46.42 78.30

1093 F 264 46.26 80.09

6145 IF&V, IC, B 2,051 37.57 81.54

1051 F 514 34.27 82.86

6100 LM, E CH, CF 1,479 29.51 84.00

1052 F 265 21.99 84.85

6146 IF&V, IC 1,987 21.78 85.69

6103 LM, B, J 1,431 17.23 86.36

1056 F 119 16.01 86.98

1027 F 229 15.44 87.57

2101 IF&V 1,830 14.13 88.12

1028 F 141 11.84 88.58

6232 LFM, WG, CE 432 9.20 88.93

1026 F 149 7.53 89.22

1002 F 117 7.36 89.51

2100 IF&V 952 7.15 89.78

6231 LFM, WG, J 368 7.08 90.06

6148 IF&V, B 333 6.71 90.31

300 CE 637 5.77 90.54

— continued
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difference across geographic regions (fig. 3a).18 Region 2 has the lowest median redemption value 

but the largest number of high outliers. Region 3 shows the most variation. However, the differences 

across register sizes are much more apparent and follow an easily discernible pattern (fig. 3b). As 

store size increases, the median and variation of FI redemption values both fall. The 25th percentile 

for the smallest stores is larger than the 75th percentile for all stores with at least five registers, 

clearly suggesting that program cost containment among smaller stores is a greater concern than 

among large stores. It is worth noting that previous research on food retailing has also uncovered an 

inverse relationship between store size and prices (e.g., Chung and Myers, 1999). There are potential 

explanations for this phenomenon that extend beyond the program. For example, larger chains and 

stores may be able to negotiate lower prices with wholesalers, enabling them to charge lower retail 

prices (Chen, 2003). 

The pattern in redemption values across store sizes suggests that the important variation in redemption rates from a cost-containment perspective is driven more by store characteristics than geography. Finally, the majority of redemptions for the A-50 stores take place at or very near the MARR. 

For the A-50 stores, the median and modal redemption value is effectively equal to the MARR, as 

most prices are at or nearly the price ceiling (fig. 3-c).19 The patterns shown here for FI 6012, the 

FI with the most total redemptions and total redemption value, are qualitatively similar for other 

frequently redeemed FIs.

18 FI 6012 consists of low-fat milk, eggs, cheese, and a choice between peanut butter or dry beans. It is important to 

keep in mind that WIC participants generally have wide flexibility in choice of brand and container size within this FI 

and others.

19 For all FIs except milk-based infant formula, participants are allowed to redeem the FI only partially, that is a participant need not purchase all of the food items authorized in the FI. These instances are known as “partial redemption,” 

and they likely account for many of the outlier observations in the lower end of the box plots in figures 3a-c.

Table 4

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

Food Instrument and Cash-Value Voucher (CVV) redemptions, by count and redemption 

value, Oct. 2009 – Feb. 2012—continued

FI Code1 Food products2

Number of FIs 

redeemed3 (1,000s)

Value ($) of FIs 

redeemed3 (millions)

% of program 

redemption cost4

2111 IM 318 5.77 90.76

6213 LFM, E, CH, DB/PB 247 5.60 90.98

1FI=Food Instruments. FIs with fewer than 100,000 redemptions or that are no longer active are excluded from table.

2Food product legend: B=fresh bananas, CE=cereal, CF=canned fish, CH=cheese, CVV=cash value voucher, 

DB=dried beans, peas, or lentils, DB/PB=dried beans, peas, lentils, or peanut butter, E=eggs, F=infant formula, 

IC=infant cereal, IF&V=infant fruits & vegetables, J=juice, LM=low fat milk, LFM=lactose-free milk (low fat), O=other, 

PB=peanut butter, SM=soy milk, T=tofu, WG=whole grains, WLFM=whole lactose-free milk, WM=whole milk.

3Only FIs with the disposition code “R” are included in table.

4Fraction of total value is based upon total value of all FIs with disposition code “R”. Given the exclusion of FIs with less 

than 100,000 redemptions, percentages do not add to 100.
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3a. Box plots for distribution by geographic area

0 10 20 30 40

Amount redeemed

Total redemption value

Geo 3

Geo 2

Geo 1

Figure 3

Box plots for distribution of Food Instrument (FI) 6012 redemption values

FI 6012; MARR Cycle: Jan 7, 2011 − Jan 21, 2011

3b. Box plots for distribution by peer group register size

Notes: Serial numbers with redeemed values less than $1.89 dropped. A-50 store redemptions are not included. 

Amount redeemed

Total redemption value

0 10 20 30 40

10+ regs

7−9 regs

5−6 regs

3−4 regs

1−2 regs

The middle value (median) of the distribution is indicated with a red dotted line, while the boundaries of the box indicate the

25th (left boundary) and 75th (right boundary) percentiles of the distribution. The brown lines, known as “whiskers,” extend 

to the 5th and 95th percentiles of the distribution. Black dots extending beyond the whiskers indicate observations in the 

upper and lower tails of the distribution.

Source: California Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) and authors

 calculations.

—continued
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Total redemption value

Notes: Serial numbers with redeemed values less than $1.89 dropped. 

MARR=$13.91.

The middle value (median) of the distribution is indicated with a red dotted line, while the boundaries of the box indicate the 

25th (left boundary) and 75th (right boundary) percentiles of the distribution. The brown lines, known as “whiskers,” extend 

to the 5th and 95th percentiles of the distribution. Black dots extending beyond the whiskers indicate observations in the 

upper and lower tails of the distribution.

Source: California Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) and authors

0 5 10 15

Amount redeemed

3c. Box plots for distribution among A-50 vendors

Figure 3

Box plots for distribution of Food Instrument (FI) 6012 redemption values—continued

FI 6012; MARR Cycle: Jan 7, 2011 − Jan 21, 2011

 calculations.
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Do the MARR Help To Contain Costs?

Figure 3 suggests that while the MARR is effective in restraining the pricing of A-50 vendors for 

FI 6012, it does not appear to be limiting pricing of FI 6012 for the non-A-50 vendors, a pattern 

that is repeated for other highly redeemed FIs as well. If the MARR were containing costs for these 

FIs, we would observe a concentration of prices at the upper bound of the distributions, but we do 

not. This raises questions about the extent to which WIC vendors charge the MARR for FIs, and in 

turn, the efficacy of the MARR in containing costs. If FI redemption values are consistently below 

MARRs, then prices at those stores are shaped mainly by the overall store-pricing strategy and 

market forces, such as competition among vendors and the behavior of price-conscious, non-WIC 

consumers. 

To test the hypothesis that the MARR were not restraining prices for non-A-50 vendors in 

California, we calculated the share of FI redemptions made at the MARR, as well as the share of 

vendors who set prices at the MARR at least once during the 29-month period, by peer group and 

for selected FIs (table 5). We define all prices within 1 percent of the MARR as meeting the MARR. 

We used this small deviation below the MARR in recognition of the facts that (a) vendors may not 

always adjust prices in response to small biweekly changes in the MARR and (b) setting price at the 

exact MARR is a difficult proposition for combination FIs and vendors who carry multiple brands of 

the same product.20

We found that the MARR is far more relevant to redemption values for A-50 peer groups than 

elsewhere; redemptions are made far more often at or very near the MARR at A-50 vendors than 

at the non-A-50 vendors. The share of FI redemptions at the MARR for A-50 vendors ranges from 

81 to 94 percent across the sampled FIs, while the shares of all non-A-50 vendors redeeming at the 

MARR hover around 1 percent. The differences in the shares within vendor peer groups charging 

the MARR are less striking but also consistent and large. The range in the A-50 peer group is 95 to 

97 percent, while it is 6 to 44 percent for the geographic peer groups.

Among the geographic peer groups, the share of redemptions made at the MARR decreases as store 

size increases. The percentage of redemptions made at the MARR for stores with one or two registers runs from 4 to 12 percent. These values are small compared with the shares for A-50 vendors, 

but they are considerably larger than the shares for the largest vendors, which are never higher than 

1 percent. This supports the notion that smaller stores are more likely to see higher proportions of 

WIC customers, and, therefore, are more likely to tailor their pricing strategies toward those priceinsensitive consumers.

The same pattern does not hold for the shares of vendors setting redemption values at the MARR 

at least once. For most FIs, the largest stores have the highest incidences of MARR-rate pricing. 

But even these percentages are much smaller than those for the A-50 vendors, which are all near 

100. Very likely, the higher incidence among larger vendors of having at least some redemptions 

20 Alternatives to a 1.0-percent deviation below the MARR could also be considered, and the greater the percentage 

deviation below the MARR included in the calculation, the greater the share of FI redemptions that would be classified 

as “at the MARR.” However, extensive analysis of the distributions of FI redemptions conducted as part of this study 

revealed no evidence of a massing of redemptions anywhere in the upper tail of the distribution. Such a mass point or 

“thickness” in the upper tails of the redemption distributions would be observed if, for example, vendors were strategically choosing their FI redemption values at, say, 95 percent of MARR to extract most of the available revenue from the 

program, while hopefully avoiding (from the vendor’s perspective) compliance auditing by the program staff.
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at the MARR is due to the great variety of eligible products, brands, and package sizes offered by 

larger vendors. Thus, occasionally a participant will choose a particularly expensive combination 

of eligible products for an FI, causing the nominal redemption value to exceed the MARR. In these 

cases, it seems the practice of large vendors to simply request redemption at the MARR.

Table 5

Redemptions made within 1 percent of the MARR for selected Food Instruments (FIs), by vendor 

peer group

FI 6012 FI 6003

Transactions Vendors Transactions Vendors

Count Percent Count Percent Count Percent Count Percent

A-50 6.8 Mil 86.2 1,130 98.1 5.0 Mil 81.8 1,119 97.1

1-2 Regs. 56,5801 4.00 292 19.69 44,514 3.51 254 14.44

3-4 Regs. 11,162 1.34 192 29.05 9,281 1.33 156 20.55

5-6 Regs. 4,373 0.41 178 43.20 2,459 0.29 168 36.52

7-9 Regs. 7,404 0.29 388 54.57 2,761 0.14 318 41.57

10+ Regs. 54,908 0.77 1,242 65.71 8,987 0.17 1,005 51.64

Total Non-A-50 134,427 1.03 2,292 44.44 68,002 0.68 1,901 33.42

FI 6011 FI 6145

Transactions Vendors Transactions Vendors

Count Percent Count Percent Count Percent Count Percent

A-50 5.1 Mil 89.3 1,110 96.5 784,194 93.9 1,015 97.1

1-2 Regs. 44,296 3.77 296 16.81 10,447 7.04 200 12.85

3-4 Regs. 12,077 1.85 143 18.77 876 1.40 78 11.52

5-6 Regs. 3,069 0.39 136 29.69 473 0.60 78 18.44

7-9 Regs. 4,091 0.23 333 43.53 1,209 0.55 212 29.36

10+ Regs. 13,327 0.28 1,128 58.14 6,723 0.97 781 40.70

Total Non-A-50 76,860 0.84 2,036 35.81 19,728 1.64 1,349 25.47

FI 6232 FI 6315

Transactions Vendors Transactions Vendors

Count Percent Count Percent Count Percent Count Percent

A-50 145,316 86.9 923 96.6 38,883 80.6 771 95.3

1-2 Regs. 1,998 7.99 116 12.39 618 11.28 47 9.07

3-4 Regs. 118 0.89 27 5.08 33 1.18 14 3.97

5-6 Regs. 96 0.49 23 5.67 18 0.30 16 4.62

7-9 Regs. 41 0.08 32 4.50 39 0.19 28 4.07

10+ Regs. 212 0.14 135 7.33 149 0.22 90 5.03

Total Non-A-50 2,465 0.94 333 7.52 857 0.83 195 5.28

Regs. = Cash registers. The FIs are defined as follows: 6012: low-fat milk, eggs, cheese, and either dry beans or peanut butter. 6003: low-fat 

milk, whole grains, and cereal; 6011: low-fat milk, whole grains, and juice; 6145: infant fruits and vegetables, infant cereal, and fresh bananas; 

6232: lactose-free milk, whole grains, and cereal; 6315: soy milk and either dry beans or peanut butter.

1To properly interpret these numbers, consider the case of 1-2 register stores and FI 6012. During the time series of our data, FI 6012 was 

redeemed 56,580 times within 1 percent of the maximum allowable redemption rates (MARR) among all 1-2 register stores. This constituted 

4 percent of the total number of FI 6012 redemptions among this vendor peer group. At the same time, 292 vendors in this peer group sold FI 

6012 within 1 percent of the MARR at least once. These vendors comprised 19.69 percent of all vendors in this peer group.

Source: California Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) and author calculations.
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Estimating the Effect of Vendor Peer Groups on FI 

Redemption Rates

In order to estimate the impact of the vendor peer group system on WIC prices and to lay the 

groundwork for simulation analysis, we conducted an econometric analysis of the dollar value 

that vendors request for reimbursement for each FI. Given that the A-50 MARR are binding for 

most vendors and that redemption rates for that peer group vary mainly due to changes in the A-50 

MARR, in this section we focus on the geographic peer groups. We also focus on the leading FIs 

(those redeemed most often) over the 29-month study period and include other FIs to generate 

coverage of foods for participants with special dietary needs. We include the leading combination FIs 6012, 6003, and 6011, as well as redemptions for FIs 6001, 6002, and 6000 (table 4). The 

latter FIs rank 5th, 6th, and 7th in redemptions, respectively, over the study period and represent 

the whole-milk equivalent combination FIs 6012, 6003, and 6011. We also examine three important FIs for infants—milk-based powder formula (combined FIs 1008–1013 and 1090–1093), infant 

meats (combined FIs 2110–2111), and FI 6145 (combination containing infant fruits and vegetables, 

infant cereal, and fresh bananas). Finally, we include two FIs for participants with special dietary 

needs—6315, which is similar to 6012 except that soy milk and tofu are substituted for low-fat cow’s 

milk and cheese, and 6232, which is similar to 6003 except that lactose-free milk is used. Summary 

statistics for the FIs included in the regression model are provided in table 6.

The following regression model was estimated for each FI studied:

RRiiii = cc + �ββll

10

ll=2

XXll + �δδkk

56

kk=1

ZZkk + εεiiii h

where Rij is the amount that vendor j requests for reimbursement for FI i. The Xl are {0,1} indicator 

variables to account for the number of registers, 2, 3, . . . , 10+, operated by a vendor, where Xl

 = 1 

if vendor j operates l registers and equals 0 otherwise. The Zk

 are fixed-effect {0,1} indicator variables to denote a vendor’s county location within California, where Zk

 = 1 if vendor j is located in 

county k and equals zero otherwise.21 Finally, εijh is a random error term, where subscript h denotes 

clustering of error terms based upon vendor peer group.22 We therefore use a fixed-effects model 

with each vendor identified by its county location and number of cash registers. This enables us to 

focus squarely on the impacts of the key variables that have been used in setting MARRs.23 The 

MARR was considered as an explanatory variable but was ultimately excluded, based on the fact 

that it is typically not binding among the geographic peer groups (table 5) and was statistically insignificant in the regressions.

21 The California WIC Program has authorized vendors in Arizona and Nevada. These vendors serve California participants who are located near the State border in rural areas with limited food access within the State. For purposes of 

the statistical analysis, these vendors were grouped into California counties based on geographic proximity.

22 Because variability in redemption values is clearly influenced by peer group (e.g., figure 3a-3b), standard errors for 

the model were clustered on vendor peer group. 

23 We also ran models including the interaction of month and year fixed effects. This accounts for any secular drift in 

prices across the 29-month period. Inclusion of these fixed effects had almost no impact on the coefficients of interest in 

the model.
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The regression results are reported in table 7, and they indicate a consistent pattern for the impact 

of register vendor peer groups on FI redemption rates.24 The reference case is the set of stores with 

a single register, so each coefficient can be interpreted in dollar terms relative to redemption rates at 

single-register stores. For example, after controlling for county fixed effects, FI 6003 vendors with 

two registers redeemed FI 6003 for $3.83 less per FI, on average, than one-register vendors. Hence, 

the average prices for these identical products were substantially different between one- and tworegister stores.

For every FI (or group of FIs), increases in register count—serving as a proxy for store size—are 

associated with significantly lower redemption rates. The smallest price effect, which in some 

cases is statistically insignificant, is observed for the two-register case. The impact of store size on 

redemption values is negative and statistically significant for all other register counts and for all 

the examined FIs, meaning that redemption values decrease significantly with the addition of each 

successive register. 

Importantly, the relative magnitudes of the coefficients exhibit a pattern that corroborates the depiction of redemption values in figure 3-b. For each FI, we observe economically important reductions 

in price associated with increased size for smaller stores. That is, expected FI redemption values 

decrease substantially between two- and three-register stores or three- and four-register stores. 

But in most cases, beyond five or six registers, the coefficients are all very similar in magnitude, 

suggesting that the highest prices in the WIC Program are found primarily among the smallest 

participating vendors. Another way of stating this is that nearly all of the cost savings for the State 

are achieved among vendors with six or more registers.

24 Statistical tests do, however, reveal that the county fixed effects are jointly statistically significant variables in explaining variations in FI redemption values. 

Table 6

Summary statistics for major California WIC FIs

FI Obs. Mean S.D. Max

Infant formula 4,266,819 17.63 4.42 42.30

Infant meats 373,876 1.17 0.36 3.55

6000 3,685,762 16.46 5.51 56.45

6001 3,815,947 14.71 3.81 39.00

6002 3,748,811 14.21 4.88 42.29

6003 9,960,009 16.56 5.56 57.41

6011 9,170,513 14.34 5.02 41.54

6012 13,537,988 14.63 3.84 37.80

6145 1,204,545 18.88 8.68 64.20

6232 2,622,393 21.76 7.60 70.80

6315 102,965 18.18 8.16 89.79

Note: Minimum values are not reported as, in the vast majority of cases, they constitute partial redemptions. 

FIs = Food Instruments.

Source: California Special Supplemental Nutrition Program for Women, Infants, and Children (WIC)and author calculations.
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Table 7

Regression results for estimating the impact of vendor peer groups on FI redemption rates

No. of registers FI 6011 FI 6012 FI 6000 FI 6001 FI 6002

Two -2.55*

(1.65)

-2.34

(1.62)

-3.75*

(1.73)

-2.43

(1.57)

-2.60

(1.63)

Three -6.70***

(4.79)

-5.60***

(3.94)

-8.51***

(4.25)

-5.65***

(3.79)

-6.63***

(4.85)

Four -9.00***

(6.86)

-7.25***

(5.26)

-11.11***

(5.84)

-7.33***

(5.08)

-9.02***

(7.13)

Five -9.91***

(6.86)

-7.65***

(5.47)

-11.80***

(6.10)

-7.66***

(5.27)

-9.88***

(7.06)

Six -11.495***

(8.44)

-8.16***

(5.98)

-13.30***

(6.88)

-8.14***

(5.72)

-11.43***

(8.73)

Seven -11.42***

(8.18)

-8.03***

(5.78)

-13.18***

(6.76)

-8.02***

(5.53)

-11.37***

(8.50)

Eight -12.05***

(9.25)

-8.71***

(6.37)

-13.74***

(7.23)

-8.65***

(6.05)

-11.93***

(9.53)

Nine -12.19***

(9.17)

-8.73***

(6.33)

-13.88***

(7.17)

-8.69***

(6.03)

-12.09***

(9.48)

Ten or more -12.54***

(9.44)

-9.53***

(6.75)

-14.33***

(7.47)

-9.19***

(6.42)

-12.45***

(9.82)

County fixed effects Yes Yes Yes Yes Yes

N 9,170,513 13,537,988 3,685,762 3,815,947 3,748,811

R2 0.57 0.47 0.55 0.46 0.56

No. of registers FIs 2110-2111 FI 6145 FI 6232 FI 6315

Two -0.25

(1.64)

-1.38

(1.13)

0.91

(0.46)

-5.70***

(9.14)

Three -0.62***

(3.97)

-9.46***

(9.84)

-10.66***

(7.98)

-17.59***

(6.69)

Four -0.73***

(4.57)

-13.88***

(13.37)

-15.39***

(11.52)

-21.92***

(10.08)

Five -0.84***

(5.29)

-17.84***

(23.67)

-16.00***

(10.58)

-23.61***

(10.74)

Six -1.00***

(6.30)

-21.09***

(23.13)

-18.28***

(13.62)

-25.77***

(11.66)

Seven -1.00***

(6.26)

-20.98***

(25.36)

-18.09***

(14.01)

-25.22***

(11.85)

Eight -1.01***

(6.38)

-21.25***

(30.83)

-18.58***

(14.79)

-25.47***

(12.16)

Nine -1.01***

(6.29)

-21.31***

(28.43)

-18.84***

(14.80)

-25.37***

(11.65)

Ten or more -1.01***

(6.27)

-21.65***

(31.72)

-19.30***

(15.27)

-25.94***

(12.00)

County fixed effects Yes Yes Yes Yes

N 373,876 1,204,545 262,393 102,965

R2 0.65 0.68 0.62 0.49

*Coefficient is significant the 0.10 level; ** At the 0.05 level; *** At the 0.01 level. Absolute values of t-statistics in 

parentheses. N = Number of redemptions. R2 measures the percentage of the variation in which redemption value is 

explained by the model.

Notes: The FIs (Food Instruments) are defined in table 3. Standard errors are clustered on vendor peer groups. 
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The pattern among the coefficients is particularly pronounced for FIs 6145, 6232, and 6315, which 

contain foods for participants with specific dietary needs and include infant fruits and vegetables, 

lactose-free milk, soy milk, and tofu. For example, FI 6315 redemption values are estimated to be 

an average of $26 lower per FI redeemed at the largest stores than at the smallest, all else constant. 

However this same coefficient for the largest stores is only about $10 for FI 6012, which is comparable to 6315 but does not include foods tailored to consumers with dietary restrictions. The reasons 

for this disparity are likely twofold: (1) most small vendors sell very few of these FIs but are 

required to carry them under minimum stocking requirements. Thus, small vendor costs are very 

high, in terms of both acquisition and losses due to spoilage and expiration dates; (2) almost all 

sales of these products will be to WIC participants, so incentives for cost containment are absent 

or minimal. The results indicate, therefore, that the highest prices among the non-A-50 vendors 

are found among the smallest vendors and for some of the least frequently redeemed FIs that were 

examined. For example, we observe nearly 10 million redemptions for FI 6003, which exhibits relatively small store-size impacts on redemption value compared with FI 6315, for which we observe 

just over 100,000 redemptions in the 29-month period studied.

For each regression, we also report the R2, the measure of the share of the variation in redemption 

values for the FI around its mean that is explained by the statistical model. In our case, it represents 

the share of variation explained by store size and geography. These shares range from 0.46 to 0.68. 

Therefore, county and registers jointly have significant explanatory power, in most cases explaining 

more than half of the variation in redemption values, but considerable variation in redemption values 

remains unexplained. The unexplained variation is due at least in part to participant choice among 

products, brands, and container sizes available to at least some extent for all of the FIs in table 7 

except for infant formula.
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Simulating Potential Savings Through Changes to Cost 

Containment

We used the regression results in table 7 to conduct two simulation analyses designed to estimate the 

potential cost savings from adjustments to the current system of cost containment in California. In 

the first simulation, we figuratively “resold” all of the FIs sold during the 29-month analysis period 

at vendor locations with one to five registers at the largest vendor operating in the same county as 

the now-excluded smaller vendors. This simulation assumes implicitly that all WIC customers shopping at small vendors have access to larger WIC vendors.25 For example, in Los Angeles County, the 

small vendor FIs would be resold in vendors with 10 or more registers, thus holding county effects 

on prices constant. In Calaveras County, however, the largest authorized vendor has nine registers, 

so the FIs redeemed at small-register vendors in that county are resold, figuratively, at the county’s 

nine-register vendor.26

We chose one-to-five-register vendors for the simulation because the econometric and statistical 

analysis showed that nearly all of the available cost savings associated with sales at larger vendors 

was achieved with vendors operating six or more registers. We applied this methodology to the 

leading FIs of the California WIC Program and calculated the savings achievable through—effectively—eliminating all small vendors in the program.27

Results of the simulation are reported in table 8. The FIs included in the table account for approximately 65 percent of program redemptions. Column (8) reports the share of total redemption value 

that is reduced for those resold FIs, or alternatively, for those sold at small vendors. The savings are 

largest, just over 50 percent, for the infant combination FI 6145, and they are also large for the FIs 

for participants with special dietary needs, FI 6232—40.8 percent and FI 6315— 47.1 percent. These 

results are fully consistent with the observation that smaller vendors attach their highest markups to 

specialty foods that they are required to stock for the WIC Program, but which they likely sell little 

or none of to non-WIC customers. These percentages also support the notion that larger vendors are 

considerably more effective at containing costs. Total estimated savings across the FIs in table 8 are 

just over $111 million for the 29-month period. 

These estimated savings should be examined in the context of the California WIC Program in its 

entirety. Column (8) reports the percentage savings for each FI, calculated as the share of savings 

achieved for the resold FIs times the share of total FIs resold, or column (4) multiplied by column (7). 

These numbers are considerably lower, ranging from 5 percent for FI 6001 to 10 percent for 6145, one 

of the smaller FIs examined in terms of number of redemptions. Weighing these percentages by the 

share of total program expenditures attributed to each FI yields total program savings of 6.3 percent.

25 This assumption will not be true for all program participants. Eliminating program vendors will inevitably compromise access for some participants. The simulation, however, will provide a sense of the program cost savings achievable 

by targeting WIC sales to the larger and more cost-effective vendors. Policymakers would ultimately have to weigh the 

value of these savings against the costs of reduced participant access.

26 A second methodological approach to estimating this cost savings is to use predicted, rather than actual, redemption 

values for both the small- and large-register vendors in making the cost-savings calculation. For any single calculation, 

these two measures will differ by the error or residual in predicting the redemption value for the smaller vendor, but when 

aggregated across a large number of FIs these residuals should sum roughly to zero. We applied this approach and found 

the two methods yielded very similar results.

27The FIs included in this simulation are provided in table 7 and account for approximately 65 percent of program 

redemptions. 
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Additional savings from this improved cost containment would also occur with A-50 vendors, for 

whom the MARR is set at the statewide average redemption value. Thus, the A-50 MARR for an FI 

would decline by approximately the percentage indicated in column (8). This savings across the FIs 

considered in table 8 is an additional $29.63 million. The combined savings, nearly $141 million, can 

be interpreted as the total program savings achievable, per the simulation, of either eliminating all 

vendors with five or fewer registers from the California WIC Program or forcing those vendors to be 

cost competitive with the largest vendors in the program. It should be thought of as an upper bound 

on available savings, as equivalent cost competitiveness between large and small stores is unlikely 

to be realistic. Smaller vendors’ operating costs are likely to be higher on a unit-of-sales basis (Guy, 

Bennison and Clarke, 2005), and the removal of small vendors from the WIC Program could make 

it more difficult for some participants to use WIC vouchers since there would be fewer stores in the 

program.

Given the interest of the California WIC Program in identifying and constraining the pricing 

of noncompetitive vendors, or “bad actors,” or possibly eliminating them from the program, we 

designed a second simulation to examine the potential savings from such a strategy. Noncompetitive 

vendors need not be contained exclusively within the smaller register peer groups. Thus, we investigated the consequences of eliminating the vendors whose prices were above either the 90th or the 

95th percentile, respectively, for each register peer group. 

Table 8

Simulation results for removing all California Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) redemptions at vendors with five or fewer cash registers and reselling at large 

vendors, by Food Instruments

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

FI

Total 

redeemed 

value 

(mil. $)

Redeemed 

value (1-5 

reg) (mil. $)

% 

Redeemed 

at 1-5 regs 

(by value) 

(percent)

# of FIs 

“resold” at 

1-5 regs

Savings 

(mil. $) at 

1-5 regs

Total 

savings on 

resold FIs 

(1-5 regs) 

(percent)

Total 

savings 

(percent)

# of FIs 

sold at 

A-50

Savings 

(mil. $) 

at A-50 

vendors

Infant 

formula 634.62 108.98 17.2 908,210 37.44 34.4 5.90 2,831,926 2.87 

Infant 

meats 11.31 1.65 14.6 60,880 0.62 37.9 5.52 269,015 0.02 

6000 93.49 18.67 20.0 813,965 6.80 36.4 7.28 2,078,348 2.39 

6001 86.16 15.12 17.5 808,205 4.21 27.9 4.89 2,107,954 1.47 

6002 82.10 16.49 20.1 816,644 6.31 38.3 7.68 2,083,530 2.22 

6003 261.82 52.38 20.0 2,272,151 19.16 36.6 7.32 6,109,709 7.09 

6011 210.70 43.08 20.4 2,118,818 16.63 38.6 7.89 5,704,622 6.26

6012 334.96 53.92 16.1 2,873,603 15.32 28.4 4.57 8,525,559 5.53

6145 37.57 7.56 20.1 235,957 3.83 50.6 10.18 842,864 1.51

6232 9.20 1.48 16.1 44,926 0.60 40.8 6.57 169,625 0.23

6315 2.70 0.32 11.7 9,881 0.15 47.1 5.49 48,424 0.05

FI = Food Instrument.
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This simulation focuses on the most important FIs, 6012, 6003, 6011, and infant formula, to identify the least competitive vendors.28 First, we calculated each vendor’s mean FI redemption value 

over the 29-month period. We then normalized each vendor’s mean redemption value by dividing 

it by the mean redemption value for the entire vendor peer group to facilitate aggregation across 

multiple FIs. We next calculated a “grand mean” for each vendor as the share-weighted average of 

that vendor’s normalized means for the four FIs, where the weight for each FI was its share of total 

redemptions for the four FIs. Thus, each vendor was assigned a single normalized mean redemption 

value that facilitated direct comparison of cost competitiveness with its peers. We then identified 

those vendors operating above the 90th or 95th percentiles, respectively, in FI redemption values in 

order to conduct two separate simulations. As with the previous simulation, we “resold” all redemptions for these noncompetitive vendors, in this case at the mean redemption value charged for each 

FI.29,30

28 Selecting a small subset of FIs make this simulation tractable. The four FIs used collectively comprise over 50 percent of all program redemptions during the period of the data.

29 By reselling at the mean FI prices for the remaining vendors, we are simulating a scenario whereby noncompetitive 

vendors are removed from the program, and their customers are left to redeem FIs at an alternative vendor. Over a large 

number of participants, these decisions should result in FIs being redeemed at about the mean redemption value for the 

remaining vendors.

30 We did not include A-50 vendors as options for the FIs that were figuratively resold. Inclusion of A-50 vendors would 

not change the calculations in any meaningful way because they are constrained to charge a statewide average price, 

which is what the simulation used for reselling purposes.

Source: California Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) and authors 

calculations.

Figure 4

Box plots for Food Instruments (FI) histograms of mean redemption values (mean = 1) by 

register groups FI 6012 redemption values

0

5

10

0

5

10

.5 1 1.5

.5 1 1.5 .5 1 1.5

1−2 Regs 3−4 Regs 5−6 Regs

7−9 Regs 10+ Regs

Density Normal grand mean Density

grand_mean

Graphs by register
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Histograms for the grand means (fig. 4) provide convenient snapshots of differences in pricing 

among program vendors within peer groups. To aid with the interpretation of these means, consider 

that a vendor who has a grand mean of 1.0 charges precisely at the average redemption rate for his 

peer group. Similarly a vendor with a grand mean of 1.5 charges 50 percent more than the average 

vendor in the peer group. The histograms for one-to-two and three-to-four register vendors are 

flat and have long upper tails, indicating that many vendors in these groups charge considerably 

above the group average, including some that charge more than 50 percent above it. The shapes of 

the histograms change quite dramatically for vendors in the 5-6, 7-9, and 10+ register groups. The 

distributions become considerably more peaked, meaning a large share of vendor grand means are 

concentrated in a limited range of prices around the group mean, and the right skew of the distribution—so apparent in the histograms for the smaller vendors—disappears. Indeed, for 10+ register 

vendors the distribution is left-skewed, indicating the significant presence of highly cost-competitive 

vendors in that group.

The results of the second simulation, reported in table 9, broadly support the implications of the first. 

The mean per unit savings are large—e.g., $8.83 for a can of formula, $16.59 for FI 6003—relative to the percentage savings in program cost. Even examining the smallest peer group, where both 

the histogram and the summary statistics suggest we find the least cost-competitive vendors, the 

achievable savings range from 5 percent to 10 percent, based on the removal of the 90th percentile of 

prices and above from the program. These numbers fall considerably as register count increases. The 

potential savings are markedly lower even for the three-to-four register peer group and are uniformly 

below 1 percent for the largest stores. The total simulated savings of removing the least competitive 

10 percent of vendors in the program is about 2.5 percent of total costs. 

The simulation results, taken together, indicate that the potential cost savings from taking steps to 

eliminate those vendors charging the highest FI redemption rates are fairly small, on a percentage 

basis. While there are some very noncompetitive vendors among the geographic peer groups, they 

are largely concentrated among the one-to-three or three-to-four register sizes. Further, while large 

shares of the clientele of these smaller vendors are likely WIC customers, they redeem few FIs relative to the largest vendors in the program. Even taking into account the A-50 peer group, the total 

achievable percentage savings remain small. Recall that the A-50 vendors are neutral with respect to 

containing costs, given that the large majority of FI redemptions at these stores take place at or near 

the MARR, set at the statewide average redemption value. Since the one-to-two and three-to-four 

register peer groups collectively account for only 15 percent of all FI redemption value in California 

WIC, the simulated efforts to constrain prices for these peer groups have a limited impact on statewide average redemption values and, hence, on the redemption values charged by A-50 vendors.
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Table 9

Simulating removal of the least cost-competitive vendors from the California Special 

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

1-2 Registers Infant formula FI 6003 FI 6011 FI 6012 Total

 Total value redeemed (mil $) 68.18 33.68 27.41 33.13 162.39

 Cost with FI resold (mil $) (95th) 66.57 32.01 26.25 32.02 156.84

 Savings (95th) 1.61 1.67 1.16 1.11 5.55

 Units resold 182,372 100,530 90,458 124,186

 Per unit savings 8.83 16.59 12.84 8.95

 Percent savings (95th) 2.36 4.95 4.24 3.36 3.42

 Cost with FI resold (mil $) (90th) 64.45 30.35 24.91 30.79 150.49

 Savings (90th) 3.73 3.33 2.50 2.34 11.90

 Units resold 444,329 222,370 202,203 281,156

 Per unit savings 8.39 14.99 12.35 8.32

 Percent savings (90th) 5.47 9.89 9.11 7.06 7.33

3-4 Registers Infant formula FI 6003 FI 6011 FI 6012 Total

 Total value redeemed (mil $) 30.59 13.44 11.27 14.64 69.94

 Cost with FI resold (mil $) (95th) 30.06 13.23 11.06 14.45 68.80

 Savings (95th) 0.53 0.21 0.21 0.19 1.14

 Units resold 58,003 23,136 21,551 29,754

 Per unit savings 9.06 9.26 9.65 6.44

 Percent savings (95th) 1.72 1.59 1.85 1.31 1.63

 Cost with FI resold (mil $) (90th) 29.41 12.99 10.81 14.26 67.47

 Savings (90th) 1.17 0.45 0.46 0.38 2.47

 Units resold 135,532 56,796 52,898 72,591

 Per unit savings 8.66 7.96 8.72 5.24

 Percent savings (90th) 3.84 3.36 4.09 2.60 3.53

5-6 Registers Infant formula FI 6003 FI 6011 FI 6012 Total

 Total value redeemed (mil $) 28.28 13.45 11.09 16.56 69.37

 Cost with FI resold (mil $) (95th) 27.84 13.21 10.82 16.34 68.20

 Savings (95th) 0.44 0.25 0.27 0.22 1.17

 Units resold 61,507 38,232 35,669 50,387

 Per unit savings 7.10 6.46 7.48 4.36

 Percent savings (95th) 1.54 1.84 2.41 1.33 1.69

 Cost with FI resold (mil $) (90th) 27.05 12.98 10.56 16.11 66.70

 Savings (90th) 1.23 0.48 0.53 0.45 2.68

 Units resold 188,849 104,280 98,306 138,202

 Per unit savings 6.49 4.58 5.35 3.23

 Percent savings (90th) 4.34 3.55 4.74 2.70 3.86

— continued
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Table 9

Simulating removal of the least cost-competitive vendors from the California Special 

Supplemental Nutrition Program for Women, Infants, and Children (WIC)—continued

7-9 Registers Infant formula FI 6003 FI 6011 FI 6012 Total

 Total value redeemed (mil $) 65.28 28.79 22.94 36.61 153.61

 Cost with FI resold (mil $) (95th) 64.71 28.42 22.52 36.25 151.90

 Savings (95th) 0.56 0.37 0.42 0.36 1.71

 Units resold 181,355 95,154 88,938 126,968

 Per unit savings 3.10 3.92 4.71 2.83

 Percent savings (95th) 0.86 1.29 1.83 0.98 1.12

 Cost with FI resold (mil $) (90th) 64.40 28.23 22.34 36.13 151.10

 Savings (90th) 0.88 0.56 0.60 0.48 2.52

 Units resold 334,915 183,679 170,649 246,144

 Per unit savings 2.63 3.03 3.50 1.94

 Percent savings (90th) 1.35 1.94 2.61 1.31 1.64

10+ Registers Infant formula FI 6003 FI 6011 FI 6012 Total

 Total value redeemed (mil $) 172.26 75.55 58.75 97.52 404.08

 Cost with FI resold (mil $) (95th) 171.67 75.28 58.54 97.39 402.87

 Savings (95th) 0.59 0.27 0.21 0.13 1.21

 Units resold 244,164 140,564 130,346 194,292

 Per unit savings 2.43 1.92 1.64 0.68

 Percent savings (95th) 0.34 0.36 0.36 0.13 0.30

 Cost with FI resold (mil $) (90th) 171.42 74.96 58.31 97.17 401.85

 Savings (90th) 0.84 0.60 0.44 0.35 2.23

 Units resold 648,576 343,536 319,600 477,706

 Per unit savings 1.29 1.74 1.37 0.74

 Percent savings (90th) 0.49 0.79 0.75 0.36 0.55

Total Infant formula FI 6003 FI 6011 FI 6012 Total

 Total value redeemed (mil $) 364.58 164.92 131.45 198.45 859.40

 Cost with FI resold (mil $) (95th) 360.85 162.15 129.18 196.44 848.62

 Savings (95th) 3.73 2.77 2.27 2.01 10.78

 Percent savings (95th) 1.02 1.68 1.73 1.01 1.25

 Cost with FI resold (mil $) (90th) 356.73 159.50 126.93 194.46 837.61

 Savings (90th) 7.85 5.42 4.52 4 21.78

 Percent savings (90th) 2.15 3.28 3.44 2.01 2.53

FI = Food Instrument. 
29

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Economic Research Service/USDA

Conclusions

The costs of the WIC Program, on a State by State basis, are directly related to program participation. For that reason, an understanding of the sources of program costs and insights into potential 

cost containment are of interest to policymakers and participants alike. We have discussed the 

primary cost-containment mechanisms of the WIC Program—vendor peer groups and associated maximum allowable redemption rates (MARR)—in detail. Using a comprehensive dataset on 

food instrument (FI) redemptions in the California WIC Program, we investigated the relationship 

between these program containment features and FI redemption rates. We also examined the extent 

to which efforts to contain prices charged by the least cost-competitive vendors might reduce overall 

program costs.

For California, vendor peer grouping and MARR pricing have been largely ineffective at restraining 

program costs. Only a very small percentage of the redemptions were within 1 percent of the 

MARR, meaning it was restraining program costs in only a small share of cases. Small vendors 

operating from one to five registers charge, by a considerable amount, the highest WIC redemption values in California. Removing these vendors from the program or, equivalently, compelling 

them to charge prices comparable to those set by larger vendors, would yield substantial savings per 

FI redeemed. The overall program savings, however, was estimated to be only about 6.3 percent 

because on average these small vendors do not redeem a large number of FIs.

The cost savings from a second potential improvement, eliminating the least competitive—or 

highest charging—vendors in the WIC Program in each peer group are also small on a percentage 

basis. For example, removing the least competitive 10 percent of all vendors, by geographic peer 

group, would result in cost savings to the program of only about 2.5 percent. In considering policy 

adjustments, these potential cost savings need to be weighed against possible reductions in participant access if some vendors are forced to leave the program under more restrictive price controls. 

Future WIC cost-containment research may need to focus on the breadth of food products allowable for purchase in the WIC Program. The California program features combination FIs, which 

contain food and beverage products across a range of product categories. Further, for many foods, a 

wide assortment of brands and product sizes are available. In some cases, organic products can be 

purchased. In practice, this means that the retail cost of many FIs can vary substantially, depending 

on participants’ choices and product availability. Other States, however, offer less participant choice 

and for some product categories require that the cheapest brand be purchased. The cost-containment 

implications of allowing broad participant choice versus requiring the purchase of least-cost brands 

are not well understood. Analysis of this varied element of State programs may show other ways that 

USDA and its State-agency partners can provide WIC benefits in a more cost-effective manner.
30

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