Facing frightened and frustrated parents who cannot find formula to feed their newborns, President Joe Biden wants to show he is taking bold action that would address the urgent need. On Wednesday he invoked the Defense Production Act, requiring private businesses to shift more supplies to the manufacturers of baby formula. Unfortunately, worried parents will continue to see empty shelves for weeks to come.
The production act gives the federal government extraordinary regulatory and financial leverage over private business in a national emergency. But there is no guarantee that the government will use its leverage to solve the underlying problem, particularly if that problem was caused by government regulation in the first place.
This crisis did not need to happen. The same companies that make formula in this country have plants in Europe, where there are no shortages.
The president’s plan requires producers of the ingredients that go into baby formula — including cow’s milk, soy milk and vegetable oils — to ship first to formula manufacturers. Other food industry customers will be forced to wait, regardless of the higher cost and the lost production that result.
In addition, the Defense Department was enlisted to ship formula from other countries in what the White House dubbed “Operation Fly Formula.” The first shipment of 78,000 pounds of hypoallergenic formulas for children with cow’s milk protein allergy arrived from Europe on Sunday, enough to provide for 9,000 babies and 18,000 toddlers for one week. That is important during this emergency, but it is not a sustainable solution.
The administration’s approach is a stopgap measure that does not address the root causes of the shortage. Requiring ingredient suppliers to prioritize formula manufacturers does not mean more formula will make it to store shelves any time soon. The bottleneck is the loss of production capacity. And ordering military flights to bring in formula from other countries would have been unnecessary had regulatory barriers not prevented imports in the first place.
Whatever these steps might do to alleviate the immediate crisis, the baby formula shortage was a long time in the making. It is the predictable consequence of federal policies that give a small number of formula manufacturers control over the U.S. market and prevent competition from imports. If we hope to lower the threat of future shortages, we need to promote greater competition among domestic producers and lower regulatory barriers to imports rather than have the White House invoke emergency powers.
Families waiting on baby formula relief
May 23, 202203:24
Nearly all baby formula purchased in the U.S. is produced domestically. Four major manufacturers — Abbott Laboratories, Mead Johnson Nutrition, Nestlé USA and Perrigo — account for about 90 percent of sales. With such a concentrated market, interrupted production at one company can cause a serious supply disruption across the country.
In this case, the formula shortage was triggered by the shutdown of the country’s largest production facility. Abbott Laboratories’ manufacturing plant in Sturgis, Michigan, produces as much as a fifth of the formula in the U.S. The plant was closed in February while Food and Drug Administration inspectors investigated it for possible contamination. This shutdown compounded an industrywide drop in production levels last year. Sales of baby formula declined in 2021 because families had stocked up during the first year of the pandemic and still had plenty left over. Demand increased to more normal levels this year, but production capacity fell with nationwide labor shortages and the loss of the Sturgis plant. As supplies tightened, panic buying devastated the inventories left in stores.
This crisis did not need to happen. The same companies that make formula in this country have plants in Europe, where there are no shortages. Shipping in supplies from their plants outside the U.S. would have avoided the loss of revenue and bad publicity the industry has faced. They did not take that action — but not because they needed the government’s help with shipping.
Tariffs as high as 17.5 percent on baby formula and overly restrictive FDA rules about product labeling and ingredient requirements make it impractical to import formula even during severe domestic shortages. Formula produced elsewhere frequently does not provide label instructions in English, and European formulas are mixed differently from American formulas. The European Union and the U.S. require most of the same vitamins and minerals in baby formula, but the amounts of some ingredients can vary. Slight differences in baby formula produced in Europe do not make those products unsafe, of course; millions of healthy European babies can attest to that fact.
Opening the U.S. market to imports would provide a backstop for consumers if a domestic manufacturer ran into production problems. The FDA belatedly admitted as much when it said it could ease some restrictions on imports. On May 16, the FDA promised to “quickly evaluate” whether imported products could be used safely and effectively.
Allowing more flexibility on imports is a good step, but it only begins to lower barriers to formula imports. A reduction in restrictive tariffs and a permanent redesign of FDA requirements while maintaining safety and effectiveness standards are needed to ensure a more rapid response to future supply problems.
The baby formula shortage was a long time in the making. It is the predictable consequence of federal policies that give a small number of formula manufacturers control over the U.S. market.
We should also change the rules that limit the options low-income parents have for their babies’ formula. The Special Supplemental Nutrition Program for Women, Infants, and Children, or WIC, provides support for these women through state-run nutrition programs. Reduced-price baby formula is available only through a state’s contractor.
This system is intended to reduce program costs by allowing states to negotiate lower prices with monopoly providers, but it reduces parents’ options to whatever a state has contracted. Companies that do not win WIC contracts are given less shelf space by retailers, making it difficult for them to compete for business and inhibiting the entry of new manufacturers. Not surprisingly, the major formula manufacturers dominate the WIC program.
Legislation signed Saturday provides somewhat greater access to baby formula for low-income families, but only during emergencies. The Access to Baby Formula Act of 2022 allows families to buy any product on the shelf rather than wait for supplies of a state’s contracted products to be restocked. But that is a patch on a fundamentally unfair system.