US launches investigation into industry’s role in infant formula supply shortages

A severe formula shortage has prompted the Federal Trade Commission to launch an investigation into industry consolidation and whether online dealers have taken advantage of desperate families struggling to find formula.

“The FTC is launching a public inquiry to identify factors that contributed to the shortage or impeded our ability to respond to it,” Lina M. Khan, president of the agency, said in a statement on Tuesday. “Learning from this experience can help determine how we can minimize the risk of similar shortages in markets for other life-sustaining products.

The agency said it would examine mergers and acquisitions patterns to better understand how the industry – which is now dominated by four manufacturers – has become so concentrated and how this consolidation should inform future merger reviews. The FTC will also review federal regulations and trade barriers that prevent foreign companies from entering the infant formula market.

Federal officials are also seeking public input on cases in which families believe they were scammed trying to buy formula or were forced to pay exorbitant prices from online dealers.

The U.S. infant formula industry has come under intense scrutiny in recent weeks, with lawmakers and consumer advocates questioning why production of a key source of infant nutrition has long been controlled only by a handful of actors. Abbott Nutrition, which controls around 48% of the market, threw the infant formula market into disarray in February when it voluntarily recalled some of its most popular powdered formulas and closed a factory after four babies who consumed some of Abbott’s products have become ill with bacterial infections. Abbott said there was no evidence his formula caused all four illnesses, and no samples of the bacteria, Cronobacter sakazakii, from infants matched the strains found in the plant.

Severe shortages have left parents frantically searching for food for their children and stores limiting sales of infant formula. The Biden administration has taken steps to ease the supply shortfall, including invoking the Defense Production Act to ramp up manufacturing.

The inquiry follows growing calls from lawmakers to investigate and overhaul the industry. Sen. Tammy Duckworth, Democrat of Illinois, urged the FTC this month to launch a comprehensive study into the industry and market conditions that led to the shortages.

The FTC said it will work with the Department of Agriculture to examine the impact of a program that aims to help low-income families buy infant formula and has helped large companies with contracts become industry giants. The Special Supplemental Nutrition Program for Women, Infants and Children, better known as WIC, is a federally funded program that provides grants to states to ensure that pregnant or postpartum women with low income and their children have access to food. Administered by state agencies, the program purchases more than half of all infant formula supplies in the United States.

State WIC agencies cannot legally purchase formula from any manufacturer. They are required to bid for the contracts and select a company, which becomes the exclusive formula provider for all WIC recipients in the state. In return, manufacturers must give states deep formula discounts.

Researchers say the tendering system could make it more difficult for small businesses to enter the market. According to research by David E. Davis, a professor of economics at South Dakota State University, brands that win exclusive contracts gain prominence in stores, which drives sales among families who don’t get WIC benefits.

Leave a Reply

%d bloggers like this: