USDA ‘two-strikes’ rule on sweets sales threatens retailers accepting food assistance payments

Grocers and convenience store operators got a 90-day grace period in December on new restrictions on using federal food aid dollars for sugary drink and snack purchases, but trade groups say the tight compliance window could push retailers out of the program.

Trade groups are requesting further guidance from the US Department of Agriculture (USDA) on new waivers from the Supplemental Nutrition Assistance Program (SNAP) enabling a patchwork of state laws that ban sugary drinks and snacks from the food assistance program.

The National Grocers Association (NGA), the National Association of Convenience Stores (NACS) and FMI - The Food Industry Association have released statements following the USDA’s Dec. 30 announcement granting the grace period on laws set to begin on Jan. 1.

Trade groups are particularly concerned about the USDA declaring that a second violation could lead to a retailer’s removal from the SNAP program.

Margaret Hardin Mannion, NACS director of government relations, said 18 states have approved new laws restricting SNAP purchases, and five of those – Indiana, Iowa, Nebraska, Utah and West Virginia – went into effect on Jan. 1.

The new laws could have a substantial impact on consumer behavior, with SNAP households accounting for $336 billion in annual food and beverage spending, according to a Circana report released in December.

Two strikes and you’re out

USDA laid out a two-strike policy in the Dec. 30 guidance for retailers found accepting SNAP dollars for purchases of restricted products.

Retailers authorized to accept SNAP payments are subject to investigation following the 90-day grace period, and those found in violation will receive a warning letter advising them to take corrective action within 30 days.

Those found guilty of a second violation are subject to involuntary withdrawal from the program. Once in compliance, retailers can reapply to participate in the program, according to USDA.

“The primary purpose of the Supplemental Nutrition Assistance Program (SNAP) is ‘to safeguard the health and well-being of the Nation’s population by raising levels of nutrition among low-income households,’” said Patrick Penn, USDA’s acting administrator of the Food and Nutrition Service. “SNAP food restriction waivers further that purpose, as part of broader state and federal government efforts to fight the obesity epidemic and Make America Healthy Again.”

Further guidance needed

NGA and NACS sent a joint letter to Penn on Jan. 7 requesting further clarification on the USDA’s Dec. 30 guidance and noting that their members are implementing the new SNAP restrictions in five states and “encountering practical challenges that raise several important questions.”

The organizations warned that strict enforcement under the two-strike rule could limit access to food benefits in some communities.

“We believe this structure does not adequately account for the inherent complexities retailers face in implementing these restrictions,” the letter said. “Furthermore, involuntary withdrawals will have real-world consequences, as they can eliminate SNAP-authorized retailers that may be the only source of SNAP access in a community miles from the nearest retailer.”

They also requested clarification on whether USDA will distinguish between retailers acting in good faith to implement the snacks ban and those intentionally circumventing the rules.

“The food supply chain is highly dynamic, with frequent changes to product formulations, sizes and labeling. Retailers are working to restrict tens of thousands of items in each affected state, and despite best efforts, occasional discrepancies are unavoidable,” the letter noted. “A system that assumes 100% accuracy does not reflect operational realities.”

Hardin Mannion confirmed that USDA has yet to respond to the letter.

Similarly, FMI released a statement on Dec. 31 requesting further guidance from USDA on how enforcement of the two-strike rule is expected to play out.

“While receiving this guidance and assurance of a 90-day grace period is critical, our members have additional questions and need assurance that ‘involuntary withdrawal’ following a second offense mentioned in the guidance will be limited to retailers knowingly and intentionally not following the restriction, not an accidental error on one of 21,000 or more products that must be coded as restricted in each state,” according to FMI.

Pressure mounting on SNAP compliance

Currently, only five states have laws for SNAP restrictions in place. Beginning on Jan. 1, six more will join them – Colorado, Idaho, Louisiana, Oklahoma, Texas and Virginia – bringing the count to 11 states by the end of the 90-day grace period.

Some states like Oklahoma and Nebraska have sent a list of UPC codes to SNAP-eligible retailers across their respective states to help businesses prepare.

Those lists might not include some banned products, such as private-label products unaccounted for by the state, according to Hardin Mannion. She said about 80% of the 155,000 c-store locations across the country participate in the SNAP program.

Retailers that work in multiple states faced additional challenges because restrictions vary from state to state, she said.

Some states exclude candy that includes flour from the banned products list, she added. States using such a definition would ban gummy bears, but cookie-based candy bars would be acceptable for SNAP purchase.

“The challenge is to get the word out to customers and there are still retailers who might not be aware this is happening,” she said.