In the early 1990s, the country’s largest baby formula manufacturers came under fire.
The three largest manufacturers, which at the time controlled 90 percent of the U.S. market, have been hit by waves of state, federal and corporate lawsuits accusing them of trying to restrict competition and using their control of the industry to set prices. Most of the cases were settled or in some cases won by companies.
Three decades later, the $ 2.1 billion industry is still controlled by a small number of manufacturers who are once again at the crossroads of their huge market share.
The infant food market was in chaos when Abbott Laboratories voluntarily withdrew some of its most popular powder formulas in February and closed its plant in Sturgess, Michigan, after four babies who consumed some of Abbott’s products suffer from bacterial infections.
Abbott, which controls 48 percent of the market, said there was no evidence that its formula caused any known baby diseases and that none of the tests performed by regulators directly linked infant formula cans that babies consume to strains. of the bacteria Cronobacter sakazakii. , found in the factory.
But the undulating effects of this plant closure are widespread, underscoring the market power of a manufacturer and the lack of significant competition in an industry governed by rules and regulations designed to protect established companies.
Stores restrict purchases of baby formula, and shelves in many markets are completely bare. Panicked parents of newborns are urging friends and family to help find food for their babies, with some resorting to preparing their own formula at home. And while the Abbott plant gets the green light to resume production this week – a move that will still take weeks to restore inventory on store shelves – there are growing calls from lawmakers for major changes in the way the industry operates.
“When something goes wrong, as happened here, then you have a big, serious crisis,” said Rosa DeLauro, a Democrat from Connecticut, who released a scathing 34-page report on whistleblowers by a former Abbott employee detailing problems with safety and cleanliness in the Sturgess Plant. She argues that the industry must be broken up and efforts must be made to promote competition in order to avoid future shortages.
Sen. Tammy Duckworth, an Illinois Democrat, called on the Federal Trade Commission last week to conduct an extensive study of the infant industry and whether market consolidation has led to a terrible shortage.
Senior Biden officials are also complaining about the power of several players. On Sunday, Transport Minister Pete Buttigig said the Biden administration needed to do more to deal with “the huge market concentration of the industry”.
“We have four companies that produce about 90 percent of the formula in this country that we probably need to look at,” Mr. Butigig told CBS’s Face the Nation.
Read more about the lack of baby formula
Today, Abbott is the biggest player. Mead Johnson, owned by conglomerate Reckitt Benckiser, and Perrigo, which produces generic formulas for retailers, control another 31 percent. Nestlé controls less than 8 percent.
Part of the lack of competition stems from simple math: Few companies or investors are eager to jump into the infant industry because its growth is tied to the nation’s birth rate, which has remained stable for decades until declining in 2007.
But the factors that have long led to the creation of an industry controlled by a handful of manufacturers are rooted largely in a tangled web of trade rules and regulations that have protected the largest manufacturers and challenged others to enter the market.
The United States, which produces 98 percent of the country’s formula, has strict regulations and tariffs of up to 17.5 percent on foreign formula. The Food and Drug Administration maintains a “red list” of international formulas, including several European brands, which, if imported, are retained because they do not meet US requirements. These deficiencies may include labels that are not written in English or do not have all of the essential nutrients listed. This week, the FDA said it would ease some regulations to allow more imports into the United States.
The trade rules contained in the United States-Mexico-Canada Agreement, which replaced the North American Free Trade Agreement, also significantly discouraged Canadian companies from exporting infant formulas to the United States. The pact established low quotas that trigger export taxes if exceeded. U.S. dairy lobbyists called on officials to swiftly accept the agreement and backed quotas at the time.
But perhaps the biggest barrier for new entrants is the structure of the program, which aims to help low-income families get a formula. The Special Supplementary Nutrition Program for Women, Babies, and Children, better known as WIC, is a federally funded program that provides grants to states to ensure that pregnant low-income or postpartum women and their children have access to food.
The program, administered by government agencies, buys more than half of all infant food supply in the United States, with about 1.2 million babies receiving formula through the WIC.
State WIC agencies cannot simply buy formula from any producer. They are required by law to submit competitive bids for contracts and to select a company that becomes the exclusive formula provider for all WIC recipients in the state. In return for these exclusive rights, manufacturers must provide countries with significant discounts on the formula they buy.
David E. Davis, a professor of economics at South Dakota State University, said the exclusive system could make it harder for smaller companies to break through. Although manufacturers can sell products to states at a lower price, Dr. Davis’ study found that brands that provide WIC contracts are becoming more popular on store shelves, creating a spillover effect and leading to higher sales among families not WIC recipients. Doctors may also prefer to recommend these brands to mothers, his study found.
“If you don’t have a contract with WIC, you’re a pretty small player,” said Dr. Davis. “Because it locks you out of the WIC market and largely locks you out of the WIC market. So companies are bidding very aggressively to get the WIC contract. “
Only three companies have contracts to supply formula through the program: Abbott has the largest share, providing formula to about 47 percent of babies receiving WIC benefits, while Mead Johnson provides 40 percent and Gerber, which produces Nestlé provides 12 percent, according to the WIC National Association.
Navigation in the shortage of baby formula in the United States
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A growing problem. A national shortage of baby formula – caused in part by supply chain problems and exacerbated by the withdrawal from baby food maker Abbott Nutrition – has left parents confused and worried. Here are some ways to manage this uncertainty:
Finding a formula. If your baby’s formula has not been affected by the download but is not yet available, you can try calling local stores to ask when they expect to get it back in stock. You may also be able to buy it online. If your baby is on a special formula, contact the doctor’s office: there may be samples in stock.
Choosing a new formula. If you usually use a brand name formula, look for its general version. Alternatively, look for a new formula that matches the ingredients listed in your usual. If your baby is on a special formula for health reasons, consult your pediatrician before changing.
Switch to a new product. Ideally, you will want to change your child gradually. Start by mixing three-quarters of your usual formula with a quarter of the new one and gradually remove the old product. If you can’t switch gradually because you’ve exhausted your usual formula, that’s fine, although you may notice more gas or nervousness during the transition.
What not to do. If you can’t find your baby’s usual formula, don’t make your own – home-made formulas are often inadequate in terms of nutrition and are at risk of contamination. Don’t try to “stretch” your formula by adding extra water and don’t buy it from untested online markets like Craigslist. For a baby under 1 year, do not use formula for a small child.
In the early 1990s, the Federal Trade Commission filed a lawsuit against Abbott, accusing her and other major manufacturers at the time, Mead Johnson and American Home Products, of fixing prices and manipulating bids in the bidding process for government contracts. for WIC. Mead Johnson and American Home Products reached an agreement before the Federal Trade Commission filed a lawsuit against Abbott. Abbott won the case when a judge ruled that the company had not participated in a conspiracy or had not participated in unfair competition in the tenders.
To help alleviate the shortage, the Department of Agriculture has granted the states an exemption that will give WIC recipients more flexibility in choosing alternative brands and formula sizes, although not every state has accepted all waivers.
While the bidding process may restrict competition, the federal government is saving about $ 1.7 billion each year as states negotiate concessions. Tiare Sanna, Oregon’s WIC program director, said mothers in the state are now facing difficulties in finding a formula because the state contracts with Abbott, but the bidding system usually allows the state to serve more participants. because he is able to buy more formula at a discount.
“If we had to use our WIC food dollars to buy a formula on a shelf price, we would have to significantly reduce the number of participants we serve,” Ms. Sanna said. “So this is a tool that allows us to serve …
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