Baby Formula Shortage Has an Aggravating Factor

In the early 1990’s, the country’s largest formula makers were on fire.

The three largest manufacturers, which then controlled 90 percent of the U.S. market, have been hit by a spate of state, federal and corporate lawsuits, accusing them of trying to limit competition and fix prices. Are using their control over the industry. Most lawsuits were settled or, in some cases, companies won.

Three decades later, the 2. 2.1 billion industry is still controlled by a handful of manufacturers, who are once again in cross hairs over their large market share.

The infant formula market has been in turmoil since Abbott Laboratories voluntarily recalled some of its popular powdered formulas in February and closed its plant in Struggs, Mick, after four children ate some of Abbott’s products. Got sick from a bacterial infection.

Abbott, who controls 48 percent of the market, said he was there. There is no evidence that this formula has caused any known illness in children. And that none of the tests carried out by regulators have directly linked the strain formula of the bacterium found in the plant, Crohn’s bacterium Sakazaki.

But the effects of this one plant shutdown are far-reaching, highlighting the lack of significant competition in an industry run by an industrialist’s market power and the rules and regulations designed to protect them.

Stores are restricting the purchase of baby formula, and shelves in many markets are completely empty. Frightened parents of newborns are calling friends and family to help them find food for their children, some resorting to making their own formula at home. And while the Abbott plant was given the green light to resume manufacturing this week – a move that would still take weeks to rebuild inventory on store shelves – for major changes in the way industries operate. Calls from lawmakers are on the rise.

“When something goes wrong, as happened here, then you’re in for a big, serious crisis,” said Connecticut Democrat Rep. Rosa de Lauro. An alarming whistleblower report was released detailing safety and hygiene issues. Sturgis plant. He argued that the industry should be dismantled and that efforts should be made to promote competition to avoid future shortages.

Senator Timmy Dickworth, an Illinois Democrat, Urged the Federal Trade Commission Last week there was a severe study of the baby formula industry and a severe shortage due to market stability.

Top officials in the Biden administration have also retained the power of a few players. On Sunday, Transportation Secretary Pat Buttig said the Biden administration needed to do more to address the industry’s “excessive market concentration.”

Abbott is the biggest player today. Mad Johnson, owned by Racket Banquiser’s party, and Perigo, which formulates general formulas for retailers, control a further 31 percent. Nestl کنٹرول controls less than 8%.

In part, the lack of competition stems from simple math: very few companies or investors are reluctant to jump into the infant formula industry because its development depends on the country. birth rate. Which remained stable for decades until it began to fall in 2007.

But the factors that led to the formation of an industry controlled by a handful of manufacturers long ago are largely linked to a tangled web of trade rules and regulations that have protected the largest producers and others. It has made it difficult to enter the market.

The United States, which produces 98% of the formula used in the country, has strict regulations and tariffs on foreign formula up to 17.5%. The Food and Drug Administration maintains a “red list” of international formulas, including several European brands, which, if imported, are detained because they do not meet US requirements. ۔ These shortcomings may include labels that are not written in English or that do not contain all the required nutrients. This week, the FDA said it would Relaxation of some rules and regulations To allow more imports into the United States.

Trade rules included in the United States-Mexico-Canada Agreement, which replaced the North American Free Trade Agreement. Significant discouragement Canadian companies export infant formula to US Package Set a low quota. Which exceeds export charges. U.S. dairy lobbying groups have urged authorities to pass the agreement quickly. Quotes supported. On time.

But perhaps the biggest hurdle for newcomers is the structure of a program aimed at helping low-income families get formula. A special supplementary nutrition program for women, newborns and infants, known as WIC, is a federally funded program that provides grants to states to ensure that low-income pregnant women and their Children have access to food.

The program, which is administered by state agencies, buys more than half of all infant formula supplies in the United States, and approximately 1.2 million infants receive formula through WIC.

State WIC agencies cannot purchase formulas from any manufacturer. By law, they are required to make competitive bids for contracts and select a company that becomes the exclusive supplier of the formula to all WIC recipients in the state. In exchange for these privileges, manufacturers will have to provide significant discounts to states for the formula they purchase.

David E. Davis, a professor of economics at South Dakota State University, said the special system could make it harder for small companies to break it. Although manufacturers may sell products to states below the price, Research by Dr. Davis It turns out that brands that secure WIC contracts are more important on store shelves, creating a spillover effect and resulting in higher sales for families who are not WIC recipients. Their research shows that doctors can preferably recommend these brands to mothers.

“If you don’t have a WIC contract, you’re a very small player,” said Dr. Davis said. “Because it pushes you out of the WIC market and it pushes you out of the non-WIC market.

Only three companies have contracts to deliver the formula through the program: Abbott makes the largest share, providing the formula to about 47% of infants receiving WIC benefits, while Med Johnson provides 40% and Gerber, developed by Nestl, provides 12%. According to the National WIC Association.

In the early 1990’s, the Federal Trade Commission filed a lawsuit. To fight Abbott was accused by him and other major manufacturers of the time, Mad Johnson and American Home Products, of bidding for state WIC contracts and of rigging the bidding process. Med Johnson and American Home Products decided before the FTC filed its case against Abbott. Abbott won the case when a judge Finished That the company did not conspire or engage in unfair competition in the auction.

To help address the shortfall, the Department of Agriculture has exempted states that will give WIC recipients more flexibility to choose alternative formula brands and sizes, although not every state has that. Adopted all discounts.

Although bidding can limit competition, the federal government saves about ً 1.7 billion annually with states negotiating waivers. Tiare Sanna, director of Oregon’s WIC program, said mothers in the state now have difficulty finding a formula because the state contracts with Abbott, but the bidding system usually allows the state to attract more participants. Allows serving because it is affordable. More formulas at discounted rates.

“If we had to use our WIC food dollars to buy formula at the shelf price, we would have to significantly reduce the number of participants we offer,” she said. Sana said. “So it’s a way to allow us to serve the children as much as possible, but I admit it can cause some problems.”

The Biden administration has announced a number of measures to address the shortage, including increasing the preparation of the Defense Production Act and expediting the delivery of Department of Defense aircraft to the United States. A White House official said Friday evening that the first flights, called the Biden Administration Operation Fly Formula, would depart from Rammstein Air Base in Germany for Indianapolis over the weekend. The official said the flights would provide Alfamino Infant and Alfamino Jr. formulas.

Still, officials acknowledged Thursday that the shortage is expected to continue into next month, largely because the Abbott plant has not yet resumed production.

Many Republicans, including Senator Mitch McConnell, the minority leader, President Biden has been accused. For shortages, management should have moved faster to limit the damage caused by plant shutdowns.

Those who have tried to enter the infant formula market say that the current situation shows the need for more competition and changes in the laws that are meant to frustrate newcomers.

“What I discovered is that this is a very complex, complex and slightly worse industry,” said Laura Modi, a businessman who, after giving birth to her first child in 2016, created a European-style, organic. Decided to form an infant formula company. He thought it would provide a better option than what is available in the states.

Following a series of fit and launch, including the voluntary return of an early product for young children manufactured in Germany and sold in the United States, his company, Bobby, received regulatory approval and Year US began selling its infant formula online to consumers.

“It’s not a growing market. It has executives who are firmly entrenched in the market,” he said.

“Without competition,” Modi said, “officials are not encouraged to progress in any way.”