The baby formula shortage is government made

Across America, some 40% of the top-selling baby formula products were out of stock as of late April. The Twin Cities of Minneapolis and St. Paul are especially hard hit: Here, the out of stock rate is above 50%. Gov. Tim Walz has blamed “market failure.” He is wrong.

The shortage might only have hit headlines recently, but data show that the average weekly out-of-stock rate for formula jumped from 3% on May 30, 2021, to 16% on Aug. 22. Then, from Nov. 28 to Jan. 30, 2022 – before the closure of a plant in Sturgis, Michigan, over safety concerns – it jumped from 11% to 24%.

The closure of the Sturgis plant in February pushed this into an acute phase. But why should the closure of one plant wreck the whole market? It isn’t “market failure.”

Just four major companies – Abbott (owner of the Sturgis plant), Mead Johnson, Gerber and Perrigo Nutritionals – control 90% of 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 U.S., 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. This year, ByHeart became the first new manufacturer of baby formula in the U.S. in 15 years after spending five years getting its manufacturing facility opened, supply chain in place, clinical trial completed, and regulatory approval secured.

The federal government’s role in concentrating the market doesn’t end there. Only three of these companies — Abbott, Mead Johnson, and Gerber — hold contracts for the Special Supplemental Nutrition Program for Women, Infants and Children (WIC), a federal assistance program, and those in receipt of benefits under this program can only use products made by the company contracted with their state. About half the total infant formula purchased in the United States is purchased by WIC recipients.

Why don’t stores just stock imported formula? Again, government action. The federal government imposes significant tariff, about 18%, and non-tariff barriers on formula imports. The FDA bars the sale of formula from Europe if it doesn’t have FDA-compliant nutritional labels. Last year, it forced a recall of approximately 76,000 units of German formula, not because it posed any risk to infants, but because it didn’t meet the FDA’s labeling standards: the products didn’t inform parents that they contained less than 1 milligram of iron per 100 calories.

You might argue that such regulations are needed to protect kids from unsafe formula, but do we really think formula from Europe or Canada is unsafe? In fact, European formula is often produced to a higher standard: As Szalinski noted in her Times article, “Currently, the only U.S. formula that would meet the EU’s requirements for DHA is the new infant formula Bobbie.”

The only people protected by such regulations are those four companies which are already in the market. Whatever the purpose of such regulations, they generally end up serving producers rather than consumers.

The formula shortage is not the result of “market failure” but government failure. The Biden administration is now airlifting formula from Europe, but that is simply government trying to remedy a problem it created. It would be much more help to desperate parents and their children to just let the private sector import it.

This op ed appeared in the Pioneer Press on June 15, 2022