M. Issue: The Potential Impact of a Flat Combined Regulated Federal
Order and Compact Over-Order Price on the School Lunch Program

    Consistent with the need to protect the interests of consumers, the
Commission sought comment on the impact, if any, of a flat, combined,
federal Market Order price and Compact Over-order Price Regulation on
the fluid milk procurement process in the context of the school lunch
(and breakfast) programs. The comment received, while limited, does
provide the Commission with an adequate basis to make an informed
decision on this question.
    Senator Jeffords submitted an analysis by the United States
Department of Agriculture indicating total annual consumption of fluid
milk by school districts amounted to 12,798,000 gallons.\107\ This
amounts to 148,456,800 pounds of milk, or approximately 5.9 percent of
all fluid milk consumed in the region.
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    \107\ RC 4/9/97.
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    The comment also contained a discussion of a study by the General
Accounting Office that described a comprehensive, 1980s Justice
Department investigation into bid rigging associated with this market.
The study describes how the school lunch program is designed to operate
through a competitive bidding process, by which individual districts
solicit bids for the supply of their milk program demands.
    This description is, in effect, one of a competitive marketplace,
despite the involvement of the government subsidization. The contracts
between the districts and the suppliers result from a competitive
bidding process, with price levels a function of market forces of
supply and demand. The Compact Commission thereby concludes that the
impact of Compact Over-order Price Regulation on the school lunch and
breakfast programs can be understood as consistent with the impact of
regulation on the larger, overall, retail market.
    As discussed below, such analysis is distinctly different from the
analysis of the potential impact of regulation on the Women, Infants
and Children Special Supplemental Nutrition Program of the United
States Child Nutrition Act of 1966, which is a capped reimbursement
program.