Baby Formula Bust: Shortages in Baby Formula Across America

 Baby Formula Bust: Shortages in Baby Formula Across America

Written by: Abby Rokus 

Over the past few weeks, baby formula has disappeared from shelves. This may initially seem like a COVID supply chain issue--and in part, it is. The center of the issue, however, surpasses typical shipping issues and ingredient shortages. Instead, it lies in America’s oligopoly over the baby formula market and refusal to trade with other countries.

Since the 1990s, baby formula producers have been the target of criticism. They faced lawsuits for creating barriers, such as fixing prices, to enter the market. The three largest manufacturers produced 90% of the formula consumed in the U.S., and their share has only increased as now 98% of formula consumed in the U.S. is produced domestically. As a result, consumers are overly reliant on producers and do not have many alternative options.

The problem is only exacerbated by government programs. For example, the WIC, or the Special Supplemental Nutrition Program for Women, Infants, and Children, provides grants that ensure access to food. According to the New York Times, this program “purchases more than half of all infant formula supply in the United States, with about 1.2 million infants receiving formula through WIC.” Not only are they the primary consumer of formula in the U.S., but state WIC agencies are also required to bid for contracts and WIC recipients are only able to buy formula from the single manufacturer the contract agrees upon. The producer then discounts the formula used by the agency. This results in a spillover effect to the general public as doctors and supermarkets are more likely to recommend and stock the WIC selected formula. WIC recipients should be allowed to choose from a variety of manufacturers in order to help diversify the market. This would break up the oligopoly and allow for more competition, ultimately benefiting families using the service.

Currently, only three brands are suppliers for the WIC. They include Abbot, Mead Johnson, and Gerber, which provide 47%, 40%, and 12% of formula for the WIC, respectively. Due to the WIC contracts, smaller companies do not have the financial incentives to enter the market. This has been a problem for decades, but we are currently seeing the effects due to one of Abbott’s plants closing on account of cases of bacterial infections. The closure resulted in recalls and stopped production of formula. They made the right choice as continuing manufacturing could have resulted in the deaths of more infants. On the other hand, when recalling the product, Abbott and the FDA should have planned for a substitute to be provided because families had no other options. This lack of foresight resulted in shortages as Abbott is one of the few formula manufactures in the U.S. and is the sole provider of formula for the WIC in nearly two-thirds of the country. Additionally, they are the main producer of specialized formula for young children who cannot consume regular products due to health conditions. Without Abbott, babies are currently being hospitalized due to not having access to the correct formula.

The government has also contributed to formula shortages by limiting trade with international companies. There are strict regulations on the labeling of formula and tariffs as high as 17.5%. This discourages trade amid the shortage despite European products being seen as equal to, or better than, American products. Canadian formula is also prevented from entering the U.S. due to low trade quotas, yet it would likely meet many of the FDA standards with minimal alterations. Thus, the U.S. should lower tariffs and remove quotas in order to prevent future shortages.

Due to few sellers and minimal trade, formula went out of stock in many stores. The out of stock rate for baby formula, according to CNN, was between 2% and 8% in early 2021. By April 2022, it reached 31%. Now, it lies at 40%, as seen in the first graph below. Some states are more affected by the shortages than others. For example, more than half of all formula was sold out in Missouri, Texas, the Dakotas, Iowa, and Tennessee at the end of April. The second image shows a map of which states have been the most affected by the shortages.

https://www.axios.com/2022/05/06/baby-formula-shortage-abbott-recall 

https://www.nbcnews.com/data-graphics/chart-baby-formula-supply-dwindling-months-rcna29475 

In response to the shortage, the FDA has allowed Abbott to start producing formula again. Although this is a beneficial step, it will still take the formula 6 to 8 weeks to reach shelves, and more needs to be done immediately. Waivers have also been granted to WIC recipients, allowing them to choose from multiple brands rather than just one. This lessens the problem of shortages, yet does not contribute to short term supply chain issues. The main strategy the U.S. is using to target this is reducing restrictions on international companies. A shipment from Germany last week included 35 tons of formula that would feed 9,000 babies and 18,000 toddlers for one week. While a significant amount, this was hypoallergenic formula for children who cannot tolerate regular formula. It was given to hospitals rather than supermarkets in order to assist a high risk population, so it will not be very helpful to the majority. There will, however, soon be a second shipment of regular formula that can be bought in grocery stores by all consumers.

Between families attempting to make their own formula and rationing the minimal amounts they have been able to buy in store, it is evident that the industry must change to avoid future shortages. Increasing competition, reducing barriers for imports, and preventing market consolidation are steps that must be taken to combat current issues. Hopefully with these changes, we will not see any sections of the supermarket barren in the future.

Works Cited

“Baby formula shortage turns 'terrifying': Out of stocks worsening.” Axios, 6 May 2022, https://www.axios.com/2022/05/06/baby-formula-shortage-abbott-recall. Accessed 24 May 2022.

Horsley, Scott. “Formula for trouble: How the US got into an infant formula mess.” NPR, 19 May 2022, https://www.npr.org/2022/05/19/1099748064/baby-infant-formula-shortages. Accessed 24 May 2022.

Kavilanz, Parija, and Ramishah Maruf. “The baby formula shortage is getting worse.” CNN, 11 May 2022, https://www.cnn.com/2022/05/08/business/baby-formula-shortage/index.html. Accessed 24 May 2022.

Ngo, Madeleine. “Baby Formula Shortage Has an Aggravating Factor: Few Producers.” The New York Times, 20 May 2022, https://www.nytimes.com/2022/05/20/business/economy/baby-formula-shortage-market.html. Accessed 24 May 2022.

Sandoval, Polo, and Samantha Beech. “Baby formula arrives in Indianapolis from Germany on US military aircraft to address critical need.” CNN, 22 May 2022, https://www.cnn.com/2022/05/22/politics/baby-formula-us-military-aircraft/index.html. Accessed 24 May 2022.

Wu, Jiachuan. “The Data Point: Baby formula supply has been dwindling for months.” NBC News, 19 May 2022, https://www.nbcnews.com/data-graphics/chart-baby-formula-supply-dwindling-months-rcna29475. Accessed 24 May 2022.