Image by Ben Kerckx from Pixabay
It wasn’t that long ago that infant formula shortages left caregivers panicking about what to feed the most vulnerable of our population. Many families, for many different reasons, rely on infant formula as the sole sustenance for their small child.
When contamination problems at a few factories pulled products from the market, the shortages that followed cast a spotlight on market monopolies.
How, in a country where a free marketplace is supported, did the United States get in such a bind with infant formula?
One of the most significant contributing factors is how the industry is set up and regulated.
Did you know that there are only four major companies that make up most of the infant formula in the United States?
Yes. A multi-billion dollar industry has only four major players.
Allied Market Research data shows that four companies control 90% of the infant formula industry.
There are, of course, other smaller manufacturers. However, their production contribution and likely their capabilities are on a much smaller scale as they share the remaining 10%.
How does this happen? Or rather, how does the U.S. government contribute to the situation?
The process to start an infant formula manufacturing company is strenuous. It is highly regulated by the U.S. Food and Drug Administration (FDA). A good thing for many reasons.
The facility must undergo rigorous inspections, go through product research studies, and contain pre-approved ingredients with minimum and maximum nutritional requirements.
Startup costs are very expensive.
Once the facility is built, however, maintenance is nominal.
As a result, these companies often produce all of their products in only a few factories to maximize efficiency and minimize production costs. But with all their eggs in one basket, once an egg is spoiled, there is significant impact.
This was evident when one Abbott Nutrition plant was shut down. Significant impacts to the infant formula supply were felt across the country.
In addition to being the country’s largest producer of regular infant formula, it was also a “critical supplier” of more specialized formulas. This plant produced formula for infants with certain allergies or health conditions. Often the sole producer for those requiring particular dietary needs.
With fewer companies producing these niche but necessary formulations, caregivers were left in a bind. Dangerous homemade formula recipes began circulating the Internet. Unapproved formula products were purchased online from foreign suppliers.
Families were doing the best they could to feed their babies.
In addition to being the primary regulatory body for formula manufacturers, the federal government is also their biggest customer.
Reports indicate that around half of all formula sold in the United States each year is paid for by the Department of Agriculture.
This is funneled through the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC).
In exchange for subsidized product rates, states sign exclusive contracts with one formula manufacturer. The formula maker has a guaranteed market share, and the government gets a huge price break. It’s a win-win solution where families lose when things go wrong.
Obviously not all families qualify for WIC or purchase infant formula through that program. So why does this agreement affect so many families?
The downstream effects of WIC contracts touch other areas of the supply chain.
Supermarkets tend to give preferential shelf space to their state’s WIC contract formula maker. They are likely to sell more of that brand than others. So they stock them more.
Pediatricians are more likely to recommend the brand to their patients’ parents. So in addition to WIC recipients, other families navigate to that brand.
With a significant portion of the market being purchased through this federal program, competitors have a harder time competing in the state and therefore do not participate in that state’s commerce or do so at a smaller rate.
The closure of a single Abbott Nutrition plant in Michigan had a significant impact. This plant holds WIC contracts in two-thirds of all states in the country.
This left the prioritized larger shelf space empty and parents empty-handed.
During the crisis, a temporary measure was put into place that would allow WIC recipients to use their benefits to purchase other brands of formula. But the damage to the supply chain was done.
Formula was in short supply.
The infant formula industry is not the only part of the food chain vulnerable to monopolies. We see this in other industries as well.
Namely, the meatpacking industry.
Most of the country’s meat products pass through a handful of meatpacking companies. Not that long ago, JBS, a prominent meatpacking company, was hit by a ransomware attack. While the company scrambled to get processes back online, 20% of the nation’s beef and pork slaughtering capacity was put on hold.
Huge fruit and vegetable recalls resulting from produce packing houses generate wide-spread, multi-state outbreaks and subsequent recalls.
The list goes on and on.
The strict requirements for infant formula formulation and production make sense. The governmental hand tapping certain proven suppliers for their contracts also makes sense.
So, the reason we got into this catastrophe overall makes sense.
But how do we fix the problem?
Probably the simplest solution is to maintain multiple contracts. While the single partnership may have generated more significant savings than what could be negotiated while other competitors are in play, the overall benefit likely outweighs the cost.
Will we see a change in the near future?
Only time will tell.
If you’d like to know more about food safety topics in the news, like “Recent Infant Formula Shortages Spotlight Market Monopolies,” check out the Make Food Safe Blog. We regularly update trending topics, foodborne infections in the news, recalls, and more! Stay tuned for quality information to help keep your family safe, while The Lange Law Firm, PLLC strives to Make Food Safe!
By: Heather Van Tassell (contributing writer, non-lawyer)
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