Further reading helped me elucidate the infant formula lifecycle, and also allayed some of my concerns about the negative consequences of the WIC program. I see that WIC does a lot of good, and there has been effort to promote breastfeeding, though formula continues to be a big component of WIC benefits. The program's focus has evolved beyond simply delivering calories in a can when malnutrition was a problem in the 1960s.

It is still concerning that WIC users have lower rates of breastfeeding than average, since this is such an important factor in child health. But it's likely that the rate would be lower in these households anyway. I don't know if the appeal of "free formula" discourages breastfeeding more than the awareness-building efforts promote it.

It's a difficult problem. I would more likely be more a fan of the program if it just gave the cash to needy people rather than patronizing them and creating weird incentives in the food market. Information and training on nutrition and breastfeeding is important too, and might be made available to beneficiaries who are not disinterested. Bad parents will still be bad parents; forcing them to sell WIC food on Craigslist to get liquor money won't help much.

Here's what I found about formula.

As of 2008, the overall formula market in the U.S. is dominated (98%) by the Big Three: Abbott had 43% with Similac, Mead Johnson had 40% with Enfamil, and Nestlé had 15% with Gerber.

These three manufacturers bid for the state-by-state rights to supply formula to WIC customers. Winning a contract means that WIC users in that state will be allowed to obtain formula from that brand using their WIC credit, which can also be used for foodstuffs (on the cheap & nutritious approved list).

So the contract holder sells formula to retailers at "wholesale" cost, which is about $4 for enough powder to make 26 ounces of formula.

Other manufacturers are free to sell formula to retailers as well, like any other product. When a WIC user buys a can of "contract" formula, they "pay" the full retail price with their WIC voucher or card (if they want a different brand of formula, they must pay out of pocket). Retailers who sell WIC products are required to charge "competitive" prices, but there is evidence that they cheat a little. Retailers are reimbursed by the WIC program for the qualifying goods sold.

So far it is pretty simple: USDA uses public funds to reimburse parents who qualify (based on income) when they purchase the selected brand of formula. But which brand gets selected?

Here's where it gets a little strange. The manufacturers bid with a wholesale price as well as a rebate, which is returned to the WIC program for each purchase. The rebate ranges from 77% to 98%, with 21 states receiving a discount of 95% or more. The contract is awarded to the manufacturer who bids the lowest net price: wholesale minus rebate. The rebate money is returned to the WIC budget, providing nearly a third of the $6 billion total annual budget.

Manufacturers can't be making much on these rebated sales, and I wouldn't be surprised if they are losing money. But WIC products may get better product placement on shelves, and might be the only brand carried by stores that don't have much space. So the manufacturers have to gamble with their bids that the revenue they make on unrebated sales (being four to fifty times higher per unit) will balance the rebated sales. The end result is probably that non-WIC customers pay more for formula, and this money helps WIC customers get formula and food. Not all bad, but it is an extra burden on formula customers who don't participate in WIC due to pride, ignorance, or apprehension, as well as income.

There are still complaints that most states exclude organic foods from the WIC program, but the approved food lists are not all as restrictive as the "whole milk only, no added calcium" rule I found. It took a few years, but eventually formula with DHA believed to be important for brain development, was approved.

The blog post WIC on the Chopping Block has a good overview of the program with a favorable overall perspective that also mentions a number of concerns.

• WIC tends to operate as a subsidy upon the industrial food system

• The Farmer’s Market Nutrition Program is tiny and excludes milk, cheese, dried beans, grains or juices (approved for WIC when purchased in supermarkets)

• WIC's breastfeeding programs seem to have made little difference – or even to slightly discourage breastfeeding

The author shares my primary concern about breastfeeding:

No one wants to risk poor infant development by restricting formula access – at the same time, we know that nursing has a greater remunerative return than WIC on short and long term child health, as well as being a way of cutting the budget without harming families – programs that increased the emphasis on nursing and incentivized nursing further might save WIC more – infant formula represents a significant portion of its overall budget.