Text of Letter to Governor George E. Pataki

June 19, 2003
Governor George E. Pataki
New York State Capitol
Albany, NY 12224

Dear Governor Pataki:

I am writing to urge you to ensure that the bidding process for the multi-year New York State WIC infant cereal contract is free from any predatory, below cost bids intended to block competition.

As you know, Canajoharie and Fort Plain are the home of Beech-Nut/Milnot, which is the second largest baby food company in the nation. The plants employ roughly 340 people in and around Montgomery County.

Beech-Nut has filed an antitrust suit in federal court (as well as in California and Texas state courts) against Gerber, the nation's largest baby food company, claiming that Gerber has used its considerable market share to engage in predatory bidding for WIC cereal contracts, in an attempt to drive Beech-Nut out of the market. These court cases are pending and are not expected to be resolved until after New York's bidding process, scheduled for July, is underway.

Beech-Nut claims that Gerber has gone to extreme efforts to prevent Beech-Nut from winning WIC bids. It maintains that Gerber uses its 77.4% market share advantage to offer infant cereal under the WIC program at a fraction of its costs, thereby securing exclusive, sole-source WIC cereal contracts. By preventing Beech Nut from becoming the WIC supplier through below-cost bids, Gerber ensures that far fewer retailers will carry Beech Nut infant cereal - for both WIC sales and non-WIC sales. Gerber thereafter recoups its losses in the WIC program by preserving its overwhelming market share in the jarred food market, having already secured brand "loyalty" from parents who were accustomed to buying their infant cereal.

Beech-Nut estimates that roughly 50% of WIC consumers who purchase infant cereal under the program will continue to stay loyal to that brand once the child switches to jarred food. By contrast if they do not win the cereal contract, they would expect to capture only 10% of the business after the child is eating jarred food. Therefore, it is extremely important to the company that they capture this multi-year contract.

As I stated previously, these claims are currently being addressed in state and federal courts; however, I am sure that you will agree that we should make every effort in the state's upcoming bid process to ensure that this important New York company does not fall victim to predatory bidding.

I understand and appreciate that the state has an obligation to its taxpayers to secure the lowest cost through an aggressive bidding process. At the same time I believe that other factors should be considered too. Obviously, the state should be vigilant to ensure that the bidding process is fair and equitable. The pending court cases are reason enough for New York State to take a particularly long look at the bids for the new WIC cereal contract.

Beech Nut employs 340 people in the Mohawk Valley, and supports the rural economy, particularly the agriculture community. Each year, Beech Nut purchases more than $7 million worth of New York apples, pears, cherries, squash, corn, green beans, peas and dairy products. Those factors are obvious benefits to New York taxpayers as well.

I appreciate your consideration of this request, and stand ready to assist you should you require any additional information.

Sincerely,

Charles E. Schumer
United States Senator