The U.S. infant formula market collapsed this year after the country’s largest manufacturer closed its Michigan plant. The move ended up resulting in a baby formula shortage that is still not straightened out.
As with a lot of product shortages experienced by millions during the height of the pandemic, there are claims spreading online – some true and many nothing more than misinformation – about the infant formula industry
Actually, the infant formula industry in the U.S. has been controlled by a small number of manufacturers for decades. We have to go back to the 1960s and 1970s, right about when my daughter was born, to get the whole crazy story
At that time, the new industry was dominated by two companies, while today, 50 years later, we can add two more companies to the list.
By the 1990s, the three largest manufacturers, which controlled 90 percent of the U.S. market at the time, were hit with waves of state, federal and corporate lawsuits, accusing them of attempting to limit competition and using their control of the industry to fix prices, according to the New York Times.
In all fairness to the corporate players, it must be said that the FDA regulates infant formulas sold to American consumers. These products have to pass certain inspections, go through research studies, and contain pre-approved ingredients.
And, it goes without saying that getting into the infant formula businress isn’t cheap. it’s a very expensive industry to maintain a business. And yes, we do need rules and regulations to protect consumers.
Going back to the lawsuits – Most of the lawsuits were settled or, in some cases, won by the companies. But the problem wasn’t rectified. Today, the $2.1 billion industry is still controlled by a small number of manufacturers, who are again in the cross hairs over their outsized market share.
According to data compiled by Allied Market Research, these four companies control about 90 percent of the U.S. infant formula industry:
- Abbott Nutrition
- Mead Johnson Nutrition
- Nestle USA
- Perrio Company
The initial shortage problem dates back to February, when a contamination problem at an Abbott factory in Sturgis, Michigan that produces much of the Similac formula, as well as several other brands, was shut down due to possible bacterial contamination.
That factory’s prolonged shutdown, combined with general supply-chain problems for the formula ingredients and packaging, has led to the shortage. Nationwide, about 40 percent of the most popular baby formula brands were out of stock as of April 24, according to the Wall Street Journal.
And here’s the kicker – Abbott controls 48 percent of the infant formula market and when that plant in Michigan shut down, the move highlighted the market power of a single manufacturer and the lack of meaningful competition in an industry governed by rules and regulations.
It all comers down to a lack of competition
It will still take weeks to rebuild inventory on store shelves — there are growing calls from lawmakers for major changes to how the industry operates.
Government purchases for the federally funded food aid program known as WIC, which account for the majority of the infant formula (56 percent) sold in the U.S., have been widely blamed for the industry’s concentration.
As Bloomberg and other outlets have shown in reports this month, the federal government requires that state WIC programs buy all their infant formula from a single provider that can offer the lowest price, offering a huge advantage to large domestic manufacturers.
And I might add that the regulations required by the FDA in producing infant formula, along with the tariffs, keep foreign companies out of the U.S. market, for the most part.
“When something goes wrong, like it has here, you then have a major, serious crisis,” said Representative Rosa DeLauro, a Connecticut Democrat who released a scathing 34-page whistleblower report from a former Abbott employee detailing safety and cleanliness issues at the Sturgis plant. She argued that the industry should be broken up and efforts should be made to promote competition to avoid future shortages.
Actually, it is not easy placing blame on any one person or company. Suffice to say that the formula shortage is instead yet another extraordinary example of the failures of the US health system, with the richest country in the world struggling to provide basic nutrition to many of its infants.