Who’s to Blame for Baby Formula Shortages?

We would not have guessed that in 2022, parents of the youngest Americans would need to cope with a predictable and completely unnecessary shortage – baby formula shortage.

Shortages began a few months ago. Reckitt Benckiser Group, which manufactures Enfamil baby formula products, announced in February that it would be unable to deliver expected supplies due to COVID-related supply chain delays. Also in February, the Food & Drug Administration shut down a factory in Michigan owned by baby formula manufacturer Abbot Laboratories over concern of possible contamination. Abbot makes nearly half of the baby formula sold in the United States, under the brand names Alimentum, EleCare, and Similac.

As a result, by early May, supplies of baby formula were down an average of 43% nationwide.

In a free market economy, which the United States purportedly has, entrepreneurs would step in and begin manufacturing baby formula in the expectation of making profits. After all, making baby formula isn’t that complex, although some babies require specialty formulations. Indeed, there are numerous online recipes for making it at home.

Or entrepreneurs would import baby formula from other countries in the expectation of being able to sell it at a premium price in America. After all, the price of baby formula in the United States, even before the shortages began, was about double the price in Europe.

But the baby formula shortage has made it crystal clear that we don’t live in a free-market economy. To begin with, there’s a tariff as high as 17.5% on imported baby formula, purportedly to protect domestic manufacturers like Abbot from unfair competition. Additional duties must be paid if imports exceed specified “tariff-rate quotas.”

Then there’s the fact that Uncle Sam buys as much as two-thirds of the baby formula in the domestic marketplace to distribute to low-income mothers under the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). Then, in a system overseen by the Department of Agriculture, WIC awards sole-source contracts in each state, cementing quasi-monopoly status to favored manufacturers. As Matt Stoller, research director at the American Economic Liberties Project puts it:

That makes it impossible to get newcomers of any scale into the market, along with the more resiliency that such competition brings. It also makes it hard to address shortages in one state with extra formula from elsewhere.

For this state of affairs, we can blame Congress. In 1980, it actually passed legislation – the Infant Formula Act – which assigned regulation of the baby formula market to the Food & Drug Administration (FDA).

The law set in place a set of regulatory barriers that made it extremely difficult for new suppliers of baby formula to enter the market. That means established players like Abbot, in effect, function as virtual monopolies in baby formula manufacturing. Indeed, just four companies account for 89% of the domestic baby formula market.

Moreover, since Abbot’s baby formula business generates only a sliver of the company’s total revenue, the shutdown of its Michigan plant was only a minor annoyance. When the company released its first-quarter results on April 20, it announced worldwide sales growth of 13.8%, substantially exceeding quarterly profit and revenue estimates. The shutdown of its baby formula factory, Abbot said, was merely a “short-term hindrance.”

This set the stage for what can only be viewed as a hysterical reaction by policymakers in Washington, D.C. Congresswoman Elise Stefanik (R.-N.Y.) called for the Biden administration to halt shipments of baby formula to the infant children of migrant mothers held in detention along America’s southern border. She blamed President Biden, along with the “usual pedo grifters,” for the shortage. (The pedo grifters reference appears to refer to QAnon, a political movement which holds that a global Satanic child sex trafficking ring conspired against Donald Trump while he was president.) In response, Congressman Ruben Gallego (D-Ariz.) accused Stefanik of belonging to a “pro-starvation caucus.”

In the midst of this enlightened discussion, the Biden administration has invoked the Defense Production Act to increase baby formula supplies. The executive order requires the companies that manufacture baby formula components to give first priority to supplying domestic formula manufacturers. The White House also announced plans to fly military aircraft to Europe to pick up emergency baby formula supplies. And naturally, Congress is holding hearings on the best ways to combat the crisis.

The FDA is under a congressional mandate to ensure that supplies of baby formula are safe. It hasn’t done an especially good job at this with established manufacturers, which have a long track record of making baby food laden with poisonous heavy metals. And we see no reason for the regulatory roadblocks the FDA has imposed for imported baby formula and for new manufacturers seeking to compete in this lucrative market, or for the monopoly the Department of Agriculture has established for state distribution of baby formula supplies. Nor is there any good reason for the FDA to forbid American parents from importing personal supplies of baby formula from unapproved suppliers abroad, rather than confiscating it.

That said, once the Abbot plant reopens, and baby formula supplies gradually return to normal, we don’t anticipate much will change. After all, Big Brother (or should we say, “Big Bottle”?) needs to show parents who’s the boss. And it’s not them.

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