I thought I had known the major government contributors to the baby formula crisis. But the following 3 paragraphs tell some things that are new to me:
Regulation is a major reason only four large formula producers control most of the U.S. market. First, parents receiving WIC assistance are allowed to choose only certain brands. Second, consumers must pay a 17.5 percent tariff on any imported formula, which prices countless brands out of the U.S. market. It’s a nice arrangement for the companies — and for their lobbyists — but it raises prices for families and makes it difficult to boost supplies during shortages.
When new formulas enter the market, regulations forbid sellers from letting anyone know about them for 90 days, even as manufacturers may advertise existing formulas all they like. Those first months on the shelf are make-or-break for many new products, which is why existing producers like this otherwise pointless regulation. At times like this, parents might appreciate hearing about new options.
One of those options is toddler formula, which in many cases meets the Food and Drug Administration’s nutritional requirements for infant formula. However, FDA regulations prohibit many manufacturers from recommending this option.
This is from Ryan Young, “Cronyism Makes the Baby Formula Shortage Worse,” AIER, May 24, 2022.
The 90-day restriction is outrageous.
Read the whole thing.
HT2 Donald Boudreaux.
READER COMMENTS
JFA
May 24 2022 at 10:21pm
“Regulation is a major reason only four large formula producers control most of the U.S. market.”
I haven’t studied the infant formula market in detail, but I would guess that statement is an exaggeration. There are plenty of other product categories that are dominated by only a few brands (colas, beer, candies, condiments, sandwich meat, electronics of various kinds, cars, etc.). Maybe regulation is the main reason why only a few brands dominate those markets… but I doubt it.
“First, parents receiving WIC assistance are allowed to choose only certain brands.”
It’s my understanding that states negotiate rebates with formula manufacturers, which is why the formula you can get in one state through WIC is not necessarily the same as in another state. Here’s a report from 2015: https://www.ers.usda.gov/data-products/chart-gallery/gallery/chart-detail/?chartId=78481.
I honestly don’t mind the government negotiating a better rate for its purchases. I’m not sure I’d call that a regulation that made the crisis worse. People on WIC are still free to spend their own money on other brands. We had a good experience with Target brand formula.
Matthias
May 25 2022 at 2:41am
What’s WIC? Seems a lot more complicated than just giving poor people money? And more prone to corruption and bureaucracy etc.
JFA
May 25 2022 at 6:58am
It’s little more complicated, but the program essentially gives poor mothers (or other caregivers) money to buy certain foods in order to take care of infants and children under 5. “In most WIC State agencies, WIC participants receive checks or vouchers to purchase specific foods each month that are designed to supplement their diets with specific nutrients that benefit WIC’s target population. In addition, some States issue an electronic benefit card to participants instead of paper checks or vouchers. The use of electronic cards is growing and all WIC State agencies are required to implement WIC electronic benefit transfer (EBT) statewide by October 1, 2020. A few State agencies distribute the WIC foods through warehouses or deliver the foods to participants’ homes. Different food packages are provided for different categories of participants.” https://www.snaptohealth.org/wic-2/wic-frequently-asked-questions-faq/#:~:text=how%20WIC%20helps.-,How%20are%20WIC%20benefits%20distributed%3F,that%20benefit%20WIC's%20target%20population.
David Henderson
May 25 2022 at 10:01am
Thanks, JFA.
Michael Rulle
May 25 2022 at 12:18pm
The formula shortage still seems unexplained. The question is why now?
These inefficiencies in market structure have presumably existed for some time. It is hard to believe we have not had manufacturing shortages before.
The current story is that 4 babies caught “cronobacter sakazakii” bacteria and 2 died. This is an extremely rare occurrence and less than 5 per year are reported to CDC (of course there are likely more that are not reported).
These 4 cases occurred in babies that used Abbots baby formula that were made in Abbots Michigan plant——and babies do appear to get this primarily from baby formula—as rare as it is. But there is no evidence however regarding causality in these 4 cases—-I.e.—-that they caught it from Abbott’s formula
I do not know why this time the plant was shut down—-although it will open in a few weeks. Abbott states unequivocally they did not find any of this bacteria in any formula or near where any formula was produced. It was found in other areas of the plant—-which is most likely true for all plants producing dry baby formula.
Why were there no plants in the past shut down—-given this occurs all the time.
Finally, Abbott has 4 other plants and they prioritized production in each toward more formula. So why do we have a shortage?
Or is there a shortage? Or will there still be a shortage once Michigan reopens.
My current guess——and it is merely a guess——is we have increased our level of paranoia since Covid ——-and certainly not getting baby formula is dangerous for other babies.
This assumes there is even a shortage. There is a shortage of Abbott’s Michigan made formula——that is clear. Also, Mead Johnson makes 40% of our baby formula.
In this modern age of technology how are we unable to change shipping schedules? The premise of this story ——-we have nationwide formula shortage due to Abbots Michigan plant——-feels like —-shall I dare say it?——fake news.
I am not saying we do or d not have a shortage ——but this concept that a closed Michigan plant caused a shortage seems ridiculous.
David Hartsough
May 25 2022 at 5:47pm
I hate needless regulations as much as the next guy, but I think the quoted passage mischaracterizes the rule (as shown in the link to the regulation). The regulation as written states:
(B)
such person has at least 90 days before marketing such new infant formula, made the submission to the Secretary required by subsection (c)(1).
In this passage the term “marketing” means offering for sale, not advertising or promotion. In other words, at least 90 days before starting to sell your new formula you need to have submitted the required paperwork to the Secretary. Now, one can argue about the reasonableness of this requirement, but it does not appear to say “you can sell but not advertise for the first 90 days while competing for shelf space.”
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