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Trump Proposal To End Food Stamps Sends Dollar Stores Tumbling

Summary:
Shortly after 1pm ET, the shares of Dollar General and Dollar Tree tumbled after it was unveiled that President Donald Trump's budget was proposing to effectively abandon food stamps, slashing the program's traditional cash payments and substituting them with packages of "100% American grown food" for recipients.  According to Bloomberg, this would represent "one of ...

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Shortly after 1pm ET, the shares of Dollar General and Dollar Tree tumbled after it was unveiled that President Donald Trump's budget was proposing to effectively abandon food stamps, slashing the program's traditional cash payments and substituting them with packages of "100% American grown food" for recipients.  According to Bloomberg, this would represent "one of the biggest shakeups of the US food stamp program in its five decade history."

The reason why deep discount dollar chains were sold off on the news is because they are particularly vulnerable to changes in the food stamp program as they largely cater to less affluent shoppers: according to Gordon Haskett Research Advisors, Dollar General and Dollar Tree have signaled that food stamps account for roughly 5 percent of sales. Shares of Dollar Tree fell as much as 3.7% to $103.68, while Dollar General was down 5% to $93.48, the declines wiping out gains by the two companies in 2018.

Trump Proposal To End Food Stamps Sends Dollar Stores Tumbling

Other retailers would also be affected, if to a lesser degree: if implemented, the Food Stamp overhaul would impact a broad swath of the grocery industry, including Walmart and Kroger. The food-stamp program served 42.2 million people during the 2017 fiscal year, with many spending the benefits at supermarkets.

Why the dramatic overhaul?

Unveiled in Trump's budget proposal, the food stamp plan is part of an effort to reform SNAP and save a projected $214 billion over a decade. According to Bloomberg, the proposal would give all households receiving more than $90 a month in cash a food-aid package that would "include items such as shelf-stable milk, ready to eat cereals, pasta, peanut butter, beans and canned fruit, vegetables, and meat, poultry or fish." Cash payouts would be gradually phased out.

For America's farmers, this implicit government demand-side subsidy was slam dunk, and their euphoria was palpable.

The so-called USDA America’s Harvest Box "is a bold, innovative approach to providing nutritious food to people who need assistance feeding themselves and their families -- and all of it is home grown by American farmers and producers," Agriculture Secretary Sonny Perdue said in a statement. The program would provide food-stamp recipients with "the same level of food value" as the current system, Perdue added.

A staple of the Obama administration when it peaked at just shy of 50 million users, the food stamp program has served 42.2 million people and 20.9 million households on average during the 2017 fiscal year. The average household benefit was $254.14, thus 81 percent of homes receiving aid would be included in the initiative, according to the USDA. The bottom line to the taxpayer in 2017 was $68.1 billion - that was the cost of SNAP assistance, with $63.7 billion given out as benefits.

As Bloomberg adds, under the proposed plan, the amount of food a household receives would be scaled to the size of the allotment, with about half of the assistance coming as food instead of cash. The USDA already buys commodities for other programs, such as the National School Lunch Program, and states would largely be in charge of distribution, the department said.

"States can distribute these boxes through existing infrastructure, partnerships, and/or directly to residences through commercial and/or retail delivery services," the department said in a statement.

Meanwhile, if EBT recipients weren't already furious enough at the prospect of losing their weekly cash allowance, the USDA also warned of tightened eligibility rules for recipients, such as stricter work requirements, as well as changing income and benefits calculations "to ensure benefits are targeted to the neediest households."

Considering that over 40 million Americans rely on the SNAP/EBT in its current iteration for their daily lives, this - of all Trump proposals - has the highest likelihood of starting an American revolution as the howls of fury should the foodstamp phase out be implemented, would be deafening.

There is just one not so minor detail: as we explained earlier, Trump's budget proposal has virtually no chance of being implemented by Congress in its current form, and furthermore any members of Congress who voted to overhaul the foodstamp program are guaranteed to have their political career dramatically truncated.

Which is why this particular Trump proposal has virtually no chance of passage.

Tyler Durden
Tyler Durden (a pseudonym) represents the idea that a return to truly efficient markets is a possibility and a necessity. After having experienced the inner workings of capitalism at various asset managers and advisors, Tyler believes that the current model is flawed and a deleveraging at every level of modern society is needed to reinspire the fundamental entrepreneurial spirit. Visit his blog: ZeroHedge (http://www.zerohedge.com/)

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