Higher Food Prices Can Take a Bite Out of SNAP Benefits
Rising prices can erode the purchasing power of benefits provided through government assistance programs. To help protect program participants from the effects of higher prices, many government benefits, including those from the Supplemental Nutrition Assistance Program (SNAP, formerly the Food Stamp Program), are adjusted annually for inflation. In periods of steeply rising food prices, however, the timing of annual adjustments may result in periods of the year when SNAP benefits are inadequate for purchasing the nutritious diet designed by USDA as the basis for benefits.
SNAP is designed to provide low-income families with increased purchasing power to obtain foods that make up a low-cost, nutritionally adequate diet. The maximum monthly SNAP benefit amounts are based on the cost of the Thrifty Food Plan—a market basket of foods which, if prepared at home, would provide a complete, nutritious diet at minimal cost. Households with no or minimal incomes receive the maximum benefit amount. Benefits are less for higher income eligible households, and these households are expected to spend some of their own money on food.
SNAP benefits are adjusted annually in October (the beginning of the fiscal year), based on the 12-month food price change measured in June. SNAP benefits lag food price changes. If food prices increase, program participants may experience a shortfall in benefits even at the start of the new fiscal year: the benefit adjustment that takes effect on October 1 does not account 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 of food cost changes occur before the next benefit adjustment.
Prices for the Thrifty Food Plan basket rose 9.3 percent between October 2007 and September 2008. ERS researchers estimate that the shortfall in the caseload-weighted maximum benefit for the program grew from $7 per household in October 2006 to $19 in September 2007. And the shortfall grew from almost $8 in October 2007 to $38 by September 2008. In an average month, SNAP households faced shortfalls of $12 in FY 2007 and $22 in FY 2008, representing losses in food purchasing power of 4 percent and 7 percent, respectively, of the maximum household benefit.
Alternative adjustment methods can reduce the shortfall but will raise program costs. ERS estimates that adjusting benefits semiannually would have reduced the loss in food purchasing power for the maximum benefit by 20 percent in 2007 and 26 percent in 2008. Implementation of this alternative would have increased benefits by $330 million in 2007 and $789 million in 2008.
Rising Food Prices Take a Bite Out of Food Stamp Benefits, USDA, Economic Research Service, December 2008
Food Stamp Benefits Provide Fiscal Stimulus, by Kenneth Hanson, USDA, Economic Research Service, April 2008