Blame ‘bad policy’ for US’s baby formula crisis

To soaring prices, plummeting stocks and disrupted supply chains, add another worry for American consumers: an alarming shortage of baby formula. Beyond the current panic, the crisis is an object lesson in how decades of protectionism can culminate in disaster.
Reports of empty shelves, rationed supplies, online scams and anxious parents have proliferated in recent weeks. An analysis by Datasembly Inc found that the out-of-stock rate for baby formula has surged to 43% nationwide this month, up from 11% in November. In some cities, the rate exceeds 50%. Experts warn it could be months before supplies are back to normal.
Two basic problems underlie the shortage, one new and one years in the making.
The first was a contamination scare. In February, Abbott Laboratories — maker of Similac formula — shut a plant in Michigan when federal regulators warned consumers that four infants had been hospitalised after exposure to its products. (None of the illnesses has been conclusively linked to the formula.) Abbott issued a voluntary recall.
Because the Michigan plant made more than half the company’s US formula — and Abbott produces some 40% of total domestic supply — the shutdown rippled across the market and worsened existing production challenges, such as labour shortages and supply-chain disruptions.
Policy makers could hardly be expected to predict such a chain of events. But it’s fair to question the Food and Drug Administration’s response. Its inspectors first detected potential contamination at the plant last September.
A whistleblower warned of additional safety lapses in October. Yet the agency waited months until acting, and is still plodding along. Asked recently when the plant might come back online, a White House official said: “We do not today have an estimate.” Desperate parents could rightly expect more urgency.
A second, more intractable problem is that decades of bad policy have led to an unduly concentrated market. Excessive tariffs and other trade barriers have all but shut out imported infant formula. Even if consumers were willing to pay higher prices, the red tape that the government imposes on foreign products, and retailers wishing to distribute them, can be prohibitive. Among other distortions, such measures have effectively blacklisted imports from the European Union — the world’s biggest producer of formula.
A program overseen by the Agriculture Department worsens this dynamic. The Special Supplemental Nutrition Program for Women, Infants and Children, known as WIC, provides vouchers to low-income families to help pay for food. By some estimates, it accounts for half of all formula sales in the US. Over the years, formula producers have offered increasingly steep discounts to win WIC contracts, knowing that this will make retailers more likely to stock their brands and thus boost their market share.
So what now? The White House says the FDA is working to increase formula imports, the USDA is trying to relax WIC rules to boost supply of eligible products, and companies across the industry are cranking up production; Abbott is even flying in new supplies from Ireland. None of those steps will alleviate shortages overnight, but they’re all on the right path.

—Bloomberg