ByHeart’s five year struggle to break into the baby formula market shows the perils of regulation
Why has the market for baby formula in the United States collapsed owing to the closure of one factory? It is, in part, because just four major companies — Abbott (owner of the Sturgis plant, which closed in February), Mead Johnson, Gerber and Perrigo Nutritionals — control 90% of the formula supply in the United States.
This concentration isn’t the result of any tendency toward monopoly inherent in a free market, but of government action. Christina Szalinski pointed out in the New York Times last year that:
…baby formula is one of the most tightly regulated food products in the US, with the Food and Drug Administration (FDA) dictating the nutrients and vitamins, and setting strict rules about how formula is produced, packaged, and labeled.
The cost of complying with such extensive regulation represents a significant barrier to entry into the formula market, as the story of ByHeart illustrates.
When Ron Belldegrun and his sister Mia Funt decided to start a new baby formula company, they knew it wouldn’t be easy. High barriers to entry had discouraged plenty of other entrepreneurs from trying. The process can be so discouraging that just two conglomerates maintain a decades-long grip on the industry.
“We knew full well what it would take,” said Belldegrun, CEO of formula startup ByHeart, who has a two-year-old daughter and is expecting a new baby with his wife next month. “It’s the most highly regulated food in the world.”
…It took the company five years to get its manufacturing facility opened, supply chain in place, clinical trial completed and regulatory approval secured. This year, ByHeart became the first new manufacturer of baby formula in the U.S. in 15 years. As further evidence of how tough it is to do, ByHeart is now one of just five manufacturers of baby formula in the U.S. [Emphasis added]
The harm done by government making it almost impossible for new producers to enter the baby formula market is now being brutally exposed by empty shelves all across America. Probably the only people who are benefiting from this situation are the manufacturers themselves.