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Explainer: What led to the baby formula shortage and how it’s being tackled

With just a handful of companies producing baby formula in U.S., the market was plunged into disarray when Abott’s plant shutdown in February. The long-term solution includes more than just importing the formula

May 31, 2022 / 02:38 PM IST
Representative Image

Representative Image

Amid a massive shortage of baby formula triggered by production and supply-chain issues, the US has imported tonnes of medically approved baby food from overseas in the last few weeks.

Several media agencies have called attention to the plight of mothers, fathers and caregivers across the US who have struggled to find scarce supplies, or driven across states in panic to buy formula.

What caused the crisis

Only three major players – Abbott, Mead Johnson, and Nestlé (which sells its products under the Gerber brand) – control almost 90 percent of the US market in the baby formula industry since decades.

The crisis began when Abott Industries, which controls 48 percent of the total market, pulled back three of its popular brands due to contamination concerns and shut down its plant in Sturgis, Michigan on February 17. According to the Food and Drug Administration’s (FDA) initial inspection, they found ties between the plant and several infant hospitalisations, including two deaths, due to a rare bacterial infection.

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Abbott has stated there was no evidence its formula caused any known infant illnesses and that none of the tests performed by regulators have directly linked the cans of formula the babies consumed to the strains of bacteria, Cronobacter sakazakii, found at the plant, reported the New York Times.

It is to be noted that the single facility in Sturgis accounted for about twenty per cent of the entire domestic supply of baby formula. But the ripple effects of that one plant closing has been immediate and catastrophic. It has highlighted the widespread drawbacks of enormous market consolidation and the absence of meaningful competition in the industry.

How it happened

This particular food crisis has been caused in part by disruptions in the global supply chain and high inflation due to the Covid-19 pandemic. But the majority of the problem is rooted in issues with the federal policies and the industry’s overall structure. The fact that the shutdown of one plant had an outsized impact on supply reflects how vulnerable the U.S. market is.

While Abott is the largest market holder, Mead Johnson, owned by the conglomerate Reckitt Benckiser, Perrigo, controls another 31 per cent. And less than 8 per cent is owned by Nestlé.

The lack of competition arises from the fact that only a few players are interested in jumping into the infant formula industry because its growth is connected to the nation’s birth rate, which held steady for decades until it began dropping in 2007, reported NYT.

Moreover, trade rules and regulations which have protected the biggest producers make it challenging for other small businesses to enter the market and sustain in it. For foreign formula, the U.S. imposes strict regulations and tariffs as high as 17.5 per cent and therefore, the country relies on 98 per cent of the formula which is produced and consumed domestically.

Even more troublesome than these regulations is the federally-funded programme that aims to help low-income families secure formula. The Special Supplemental Nutrition Program for Women, Infants, and Children, better known as WIC, purchases more than half of all infant formula supply in the United States, which accounts for 1.2 million babies overall.

State WIC agencies are required by law to hold competitive bids and select one company. From then on, the company becomes the sole supplier of all WIC recipients in the state. The exclusivity rights, in exchange, are compensated for by heavy discounts. WIC contracts gain greater prominence on store shelves, creating a monopoly in the market.

How to fix this

While the Abott plant was given the go ahead signal to begin its operations again, it said it will take six to eight weeks to rebuild the inventory on store shelves. Meanwhile, several stores across the country are scraping to fill their barren shelves and others have limited the purchases of baby formula.

To alleviate the shortage, the Biden government has invoked the Defense Production Act to boost baby formula production and authorised flights to bring imports from overseas, which the White House is calling "Operation Fly Formula."

Jill Biden, First Lady, and Vivek Murthy, Surgeon General, received the delivery on May 25 of a second shipment of tens of thousands of pounds of baby formula that the Biden administration is importing from Europe to mitigate the crisis.

While it’s difficult to predict how the federal authorities will prevent the shortage of the infant formula in the future, there are calls across administrations to shake up the major players.

To break into the infant formula is proving difficult for new businesses despite the present situation showing a necessity for more competition and policy changes. Unless the rules which appear to thwart new entrants are subsided, the solution might not last long-term.

(With inputs from AP)

 
Urvashi Mishra
first published: May 31, 2022 02:38 pm
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