Rising Food Prices Take a Bite Out of Food Stamp Benefits
by Kenneth Hanson and Margaret Andrews
Economic Information Bulletin No. (EIB-41) 21 pp, December 2008
The Food Stamp Program is designed to provide low-income
families with increased food purchasing power to obtain a
nutritionally adequate diet. Maximum benefit amounts are tied to
the cost of a diet as specified in USDA's Thrifty Food Plan. Since
the early 1970s, the program has used various mechanisms to adjust
benefits in response to rising food prices. Under the current
method of adjustment, the maximum benefit falls short of the cost
of a diet in the Thrifty Food Plan.
What Is the Issue?
Food stamp benefits are adjusted annually at the beginning of
the fiscal year (October to September) to stabilize the purchasing
power of program participants. In October, the maximum benefit is
set equal to the cost of the Thrifty Food Plan in the previous
June. So, by October, when the new benefits schedule takes effect,
the food stamp benefit adjustment fails to correct for nearly 4
months of price changes (mid-June to the end of September). And,
since the adjustment is made only once a year, nearly 16 months
will pass before benefits are adjusted again.
This report estimates the reduced purchasing power of the
maximum food stamp benefit for fiscal years (FY) 1997-2008
and the first month of FY 2009 (October 2008). It then compares
those estimates with estimates from two alternative approaches to
adjusting benefit levels, along with associated increases in
What Did the Study Find?
The shortfall between a household's food stamp benefits and the
cost of a nutritional diet as characterized by the cost of the
Thrifty Food Plan grows with the rate of food price inflation.
Alternative methods of adjusting the maximum food stamp benefit may
reduce the shortfall but can raise program costs. Specifically, the
study found that:
- Under the current method of adjusting food stamp benefits, the
average monthly loss of food purchasing power for households
receiving the maximum benefit ranged from $2.60 in FY 2003 to $12
in FY 2007, and to $22 in FY 2008. These losses in food purchasing
power account for 1 percent, 4 percent, and 7 percent of the
average maximum benefit, respectively.
- The FY 2009 maximum food stamp benefit has been set at $588 per
month for the reference family of four, based on the June 2008 cost
of the Thrifty Food Plan. Between June and October 2008, the cost
of the Thrifty Food Plan rose to $606, 3.1 percent more than the
maximum benefit in the first month of FY 2009.
- An alternative method of adjusting benefit levels is to set the
maximum food stamp benefit to 103 percent of the cost of the
Thrifty Food Plan. In this case, the loss in food purchasing power
would have been reduced by 73 percent in FY 2007 and 43 percent in
FY 2008. Per household, the average monthly loss would have been
reduced from $12 to $3.30 in FY 2007 and from $22 to $12.40 in FY
2008. For years in which food price inflation is less than 3
percent, this alternative method of adjustment results in an
average monthly gain in food purchasing power for households
receiving the maximum benefit. In FY 2007, use of this alternative
would have added $1.2 billion in Federal costs of benefits issued,
or 4.2 percent of total benefits issued. The costs of additional
benefits are estimated at $1.35 billion in FY 2008.
- A second alternative of adjusting benefit levels is to make
semi-annual adjustments to the maximum benefit. In this case, the
loss in food purchasing power would have been reduced by 20 percent
in FY 2007 and 26 percent in FY 2008. Per household, the average
monthly loss would have been reduced from $12 to $9.70 in FY 2007
and from $22 to $16.20 in FY 2008. In FY 2007, use of this
alternative would have added $0.33 billion in Federal costs of
benefits issued, or 1.1 percent of total benefits issued. The costs
of additional benefits are estimated at $0.79 billion in FY
- While the 103-percent adjustment alternative will over-adjust
the maximum benefit amount in low-inflation years, the semiannual
adjustment tends not to.
How Was the Study Conducted?
The analysis is based on food prices from the Bureau of Labor
Statistics' Consumer Price Index, and information on the cost of
the Thrifty Food Plan from USDA's Center for Nutrition Policy and
Promotion. It also reviewed Federal regulations governing the
adjustment of the FSP maximum benefit amount. Estimates of the
budgetary costs of alternative indexation scenarios were generated
using a micro-simulation model developed by Mathematica Policy
Research, Inc., for USDA's Food and Nutrition Service.