Thinking Citizen Blog — The Baby Formula Shortage — Why?
Thinking Citizen Blog — Tuesday is Economics, Finance, and Business Day
Today’s Topic: The Baby Formula Shortage — Why?
Why is the out-of-stock rate on baby formula in the US 40%? Why are mothers scrambling desperately to feed their infants? What should be done so that this does not happen again? Some blame the supply chain crisis triggered by Covid, others excessive regulation and high tariffs. Experts — please chime in. Correct, elaborate, elucidate.
IS THE OLIGOPOLISTIC STRUCTURE OF THE US INDUSTRY A FUNCTION OF REGULATION? (New York Times, first link below)
1. 90% of the US market is concentrated in four companies: Abbott Labs (48%), Mead Johnson, Perrigo, Nestle.
2. “In part, the lack of competition stems from simple math: Few companies or investors are eager to jump into the infant formula industry because its growth is tied to the nation’s birth rate, which held steady for decades until it began dropping in 2007.” The pandemic may have accelerated this rate of decline. (New York Times, first link)
3. “But the factors that long ago led to the creation of an industry controlled by a handful of manufacturers are primarily rooted in a tangled web of trade rules and regulations that have protected the biggest producers and made it challenging for others to enter the market.” (ditto)
NB: “The United States, which produces 98 percent of formula consumed in the country, has strict regulations and tariffs as high as 17.5 percent on foreign formula. The Food and Drug Administration maintains a “red list” of international formulas, including several European brands that, if imported, are detained because they do not meet U.S. requirements. Those shortcomings could include labels that are not written in English or do not have all of the required nutrients listed.” (ditto)
IS THE WIC PROGRAM PART OF THE PROBLEM? (New York Times, first link below)
1. “But perhaps the biggest barrier to new entrants is the structure of a program that aims to help low-income families obtain formula. 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 low-income pregnant or postpartum women and their children have access to food.”
2. “The program, which is administered by state agencies, purchases more than half of all infant formula supply in the United States, with about 1.2 million infants receiving formula through WIC.”
3. “State WIC agencies cannot just buy formula from any manufacturer. They are required by law to competitively bid for contracts and select one company, which becomes the exclusive provider of formula for all WIC recipients in the state. In exchange for those exclusive rights, manufacturers must provide states significant discounts for the formula they purchase.”
NB: “Only three companies have contracts to supply formula through the program: Abbott makes up the largest share, providing formula to about 47 percent of infants that receive WIC benefits, while Mead Johnson provides 40 percent and Gerber, which is manufactured by Nestlé, provides 12 percent, according to the National WIC Association.”
THE TRIGGER WAS THE CLOSURE OF THE ABBOT LABS STURGIS PLANT
(Wikipedia, second link below)
1. The shutdown was the consequence of “a FDA recall of several brands of formula due to possible bacterial contamination that may have caused at least two infant deaths.”
2. “In October 2021, four months before the recall, a former employee of Abbott Nutrition in its Sturgis plant raised concerns about safety violations in the plant to senior FDA officials.”
3. “The whistleblower outlined allegations of lax cleaning practices, improper training of employees, falsified records, and efforts by officials at the plant in 2019 to keep FDA inspectors from learning about serious issues related to the plant’s system for checking for bacterial contaminants in the formula.”
NB: “The CEO of Abbott apologized for the voluntary recall on May 22, stating that their voluntary recall had exacerbated the infant formula shortage in the US, while also stating that the voluntary recall was the “right thing to do.”
#2 “39 Songs, Prayers, and Poems: the Keys to the Hearts of Seven Billion People” — Adams House Senior Common Room Presentation, 11/17/20
Here is a link to the last four years of posts organized by theme: (including the book on foreign policy)
YOUR TURN — Please share:
a.) the coolest thing you learned this week related to business, economics, finance.
b.) the coolest thing you learned in your life related to business, economics, finance.
c.) anything at all related to business, economics, finance.
d.) anything at all