It's bullshit, Gina.
No way in hell does a family HAVE to go through 4 gallons of milk a week, or a loaf of bread a day -- store bought bread, that is, and fresh milk.
I remember MANY times drinking reconstituted dry milk (nasty stuff, but I drank it) and it was a fairly common thing for me to bake my own bread.
You're absolutely right in thinking that lesser-quality cuts of meat can be used in stews; beans can be used in lieu of meat; and other dietary adjustments can be made to adjust to one's budget. Ramen noodles are cheap, but that isn't much of a healthy meal due to all the sodium, I would think.
Bottom line is - Ms. welfare momma is simply going to have to dust off the top of her stove and actually USE the f'n thing. Ditto for her oven.
As Flame aptly says, the snacky foods, chips, and empty calories might simply have to go away until Ms. Welfare Momma hits the lottery (because you KNOW she's buying tickets every week).