Food Industry Rebates: Choosing Between Corporate Greed and Children's Health

This post is part of a series on sustainability in the health and wellness industry, curated by Becky Eisen, Dana Ledyard, Izabel Loinaz. Follow along with the series here. By Ed Bruske, aka The Slow Cook
When I stumbled into an opportunity to observe the kitchen operations at my daughter’s elementary school in the District of Columbia, I naively thought I was going to be watching food cooked from scratch. Instead, I saw something frozen called “beef crumbles” being mixed with an oddly orange sauce to make “baked ziti,” followed by lunches of re-heated pizza, chicken nuggets and processed “turkey ham.”

It was bad enough that everything the kids were eating seemed to arrive with a mile-long list of industrial ingredients. What really took my breath away were the breakfasts. Every day children as young as five lined up for a choice of strawberry or chocolate milk, Apple Jacks or some other sugary cereal, Pop-Tarts, Giant Goldfish Grahams and Otis Spunkmeyer muffins. Throw in a four-ounce container of fruit juice and kids routinely were consuming the equivalent of 15 teaspoons of sugar before classes even started.
What sort of adults, I wondered, could possibly think this was appropriate food to be serving children? Then my journalist’s instincts kicked in. I started poking around to see who might be profiting from this kind of food service. After filing Freedom of Information Act requests with D.C. Public Schools, I learned that Chartwells—the district’s hired food service provider—had collected at least $1 million in so-called "rebates" from food manufacturers during the school year.

Rebates are money food manufacturers pay customers like Chartwells for purchasing large volumes of product. As I would learn over the course of months of reporting, a vast system representing hundreds of millions of dollars worth of rebates exerts enormous influence over the meals children are served in the nation’s schools.

Shortly after I exposed the rebates Chartwells was collecting, Sodexo, another food service giant, agreed to pay New York State $20 million to settle claims that it improperly withheld rebate income from its school clients.  Recently, Assistant New York Attorney General John F. Carroll went before members of the School Nutrition Association to say that his investigation  continues and that he expects it to result in more settlements with more food service companies.

Rebates are pervasive wherever management companies such as Sodexo, Chartwells and Aramark operate. They create “an inherent conflict of interest” in the choice of foods served to children, says Carroll, favoring industrially processed convenience foods made by large manufacturers. Food service managers are instructed to make their purchases from carefully drawn lists of businesses that will generate the most rebates. The system is rigged against small producers and local farmers. But kids are the most adversely affected, because the food they eat has not been selected with their best interests in mind, but to generate easy profits.

The sums involved are staggering. Chartwells and several sister companies belonging to the British food service behemouth Compass Group make some $5 billion in purchases annually. Rebates, which can range from 5 percent to 50 percent of the value of the items purchased, are managed by a special group of employees dedicated to arranging contracts with suppliers and tracking the money due. According to Carroll, rebates  “are extremely valuable because rebate dollars are the cheapest to earn." In schools, they become a potent tool for imprinting food brands in the minds of impressionable children. But you won’t find rebates listed on any annual report or other public document. The food industry treats rebates as one of its most closely guarded secrets.

Whenever a doubt creeps into my mind about what truly motivates the U.S. food industry, I remind myself about rebates and the cut-throat greed that fuels them. It’s sobering to remember that the first obligation of corporations is to maximize profits, not look after the health of children. The Federal Trade Commission reports that 44 major companies spent $1.6 billion in 2006 on food and beverage advertising aimed at kids. Most of that money was spent on television pushing carbonated beverages and cereal. Even pre-schoolers can now distinguish between brands, and gravitate toward cereals adorned with their favorite cartoon characters. Yet the industry resists any attempt at government regulation.

Obviously, selling food to minors is big business, and we didn’t arrive here overnight. For more than 100 years, corporate food interests have been working overtime to convince Americans that cooking real food is drudgery, that convenience is more precious than food, or even our health. The results are now plain for all to see: an epidemic of obesity in which even children are subject to crippling health problems such as diabetes, hypertension and coronary artery disease.

Face it: For the food industry, money is the issue. Everything else is talk and window dressing. If consumers want to fight this thing, they need to stop waiting for a rescue from Uncle Sam and vote where it counts: with their wallets. They need to demand better food and be willing to pay for it.