GOOD READS

Fitch: SNAP Cuts In Farm Bill May Dent Food Companies

NEW YORK--(BUSINESS WIRE)--

The sharp reduction in Supplemental Nutrition Assistance Program (SNAP) payments may dent the operations of food companies when the Agriculture Act of 2014 (farm bill) becomes law, Fitch says. The farm bill cuts SNAP spending by $8.6 billion over the next decade. According to the United States Department of Agriculture, SNAP program benefits were approximately $76 billion in 2013.

The bill passed legislation this week after a tumultuous four-year back-and-forth process. President Obama is set to sign the bill into law later today.

The new law's reductions in SNAP (formerly known as the Food Stamp Program) payments will further constrain spending for already cash-strapped consumers. The bifurcation of consumers continues, with higher income consumers faring well but middle to low income consumers remaining severely cost conscious and searching for food products on promotion. Packaged food companies have already reported weakness in growth for packaged foods in the center of the store where shelf stable foods are sold.

An increase included in the 2009 Recovery Act raised the maximum SNAP benefit from April 2009 through Oct. 2013. That increase ended in Nov. 2013, reducing benefits for nearly every SNAP household. Families of three now receive approximately $29 less per month. Feeding America estimates that the bill will cause an estimated 850,000 low-income households to lose approximately $90 more in monthly benefits.

Fitch believes spending on non-essential foods such as snacks could be hit hard and that basics such as milk will be also be affected, possibly causing a slight shift toward lower priced private label foods. We note that branded packaged food companies generally have the ability to manage their capital structures to maintain metrics appropriate for their current ratings.

There may also be a slight shift toward farmers' markets, as the farm bill allows the doubling of food stamp benefits at these types of markets to encourage the consumption of more nutritious foods.

Fitch does not expect any portion of the farm bill alone to materially impact ratings of US food or agribusiness companies.

In addition, protein producers and industry groups have lobbied for the repeal of country of origin (COOL) labeling contained in the farm bill. The additional costs of tracking and labeling exactly where animals were born, raised and slaughtered will likely eventually be passed on to consumers in the form of higher prices.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Quiz: How well do you know India's economy?

Question 1

Which of these products is India the world's largest producer of?

Poll Choice Options
  • Wheat
  • Rice
  • Milk
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