The U.S. is entering the third month of a catastrophic baby formula shortage that has left shelves bare of essential food for infants and desperate parents scrambling to feed their hungry babies. Millions of babies rely on formula for the entirety of their nutrition, so the mind boggles that our formula infrastructure is so friable, so ripe for failure.
An answer appeared to be on track after the Abbott formula plant linked to 9 infant deaths that shuttered in February restarted production 13 days ago after months of delay and investigation. But now a massive flood has shut down that same plant, sending hope of a sure domestic fix back into question.
For most of us, it is be hard to believe this could happen in the U.S. at all. We’re talking about baby formula here! Experts, however, are not so surprised. According to those who have closely watched the infant formula industry, it has long been a ticking time bomb, all too ready to explode in the faces of American families.
Here are 7 things everyone needs to know about this crisis — facts to face so that we can find a way out of the mess and aren’t doomed to repeat it.
1. The pandemic was the straw that broke the formula supply.
This meant demand temporarily surged for a variety of products — from toilet paper to canned goods to, yes, formula. Consequently, demand plummeted as parents worked through their stockpiles — so formula manufacturers produced less in 2021.
More babies were born in 2022 after a pandemic birth lull and the demand for infant formula ballooned. Manufacturers worked to create more product and were hit with a massive double whammy: a product recall and a facility closure.
2. Abbott, which accounts for 43 percent of formula sales in the U.S., had to shut down their facility and recall formula.
Things took a turn for the worse when rumblings of a shortage started in January after the closure of the Abbott-owned formula plant in Sturgis, Michigan, due to bacterial contamination that resulted in the deaths of at least 9 babies in 2021. A whistleblower report to the FDA also cited other health and safety issues resulting in a formal FDA inspection. The FDA and Abbott were made aware of the complaint almost a full year before the inspection that resulted in the shutdown.
Following the shutdown, several types of formula were formally recalled; many of them were specialty formulas for infants with allergies or specific dietary needs.
By mid-April, baby formula inventory around the country had dwindled by around 40%. As of June 2, one in five states had lost 90% of their formula inventory and parents held empty bottles, drove hundreds of miles in different directions to find food for their babies, tried risky and unproven at-home formula recipes, and were left to wonder how something so basic and so necessary could disappear.
On June 4th, that same Abbott plant reopened their plant, but just a little over a week later, had to shut down again due to catastrophic flooding in the facility, pushing back the timeline for when parents can start to see things get back to normal. “We have informed FDA and will conduct comprehensive testing in conjunction with the independent third party to ensure the plant is safe to resume production. This will likely delay production and distribution of new product for a few weeks,” Abbott stated.
3. There isn’t a monopoly on formula — more like an oligopoly.
Many reporters and some policy makers have suggested that there’s a monopoly on baby formula. Experts described to Fatherly something that looks more like an oligopoly — a market condition that exists when there are only a handful of producers making essentially the same product with few differences.
The baby formula market in the U.S. has four main contributors — Abbott, Mead Johnson Nutrition, Nestle USA, and Perrigo — which comprise around 90% of the full market share of baby formula. The largest of these is Abbott, which makes up about 43 percent of formula sales in the U.S. and has sole Women, Infants, and Children Services (WIC) contracts in 49 states.
A monopoly is a condition of only one supplier and the market depends solely on that supplier. Both monopolies and oligopolies are heavily regulated, but it doesn’t take an economic whiz to see how both pose dangerous risks, especially when used for essential goods like the only food most babies depend on for survival.
“What you have here is an example of a bottleneck,” said Dr. Steven Melnyk, a Professor of Supply Chain Management at Michigan State. “When [bottlenecks] shut down, they affect the entire system. When the Abbott Sturgis plant was shut down, you lost 40% of production.”
Other formula manufacturers were not in a position to increase production to meet demand — and had, as the Atlantic pointed out, pulled back production in 2021 anyhow. Supply dwindled. Parents and caregivers understandably panic bought again and depleted store inventory.
4. WIC Services offer formula to millions — with many strings attached.
One of the main culprits in the oligopoly is the Special Supplemental Nutrition Program for Women, Infants, and Children, or WIC, the federal assistance program many low-income families depend on for formula and other necessities.
WIC provides healthy food, nutrition counseling, health education, health referrals, and vouchers to buy formula for families with kids from 0 to 13.
WIC is an essential social safety net program. In 2018, nearly half — 45% of babies born in the U.S. were eligible for WIC and 98% of those who were eligible participated in the program. Fifty-eight percent of formula purchased in the U.S. is purchased using WIC benefits. The necessity of the program cannot be understated.
So it can become a problem when families using WIC can’t purchase whatever formula they want. WIC state agencies approve only one brand of American-made formula for families in that state to use, and that manufacturer provides the government with a rebate on all units purchased under the WIC program.
WIC is the largest purchaser of formula in the United States for moms who need the assistance — about half of all babies born in the United States qualify for WIC — and the way WIC contracts are structured has exacerbated the crisis.
When WIC awards a formula contract to a manufacturer, that manufacturer essentially owns a monopoly on all of the formula sold through WIC in that state. And the way WIC is set up doesn’t allow much for international competition, either.
“The WIC system is limited to domestic manufacturers,” Gary Clyde Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics and former deputy assistant secretary for international trade and investment policy at the US Treasury, explained to Fatherly. “Essentially, it gives a state monopoly to the winning bidder. So on top of the high tariff, this cuts out foreign suppliers.”
Abbott, per Politico, is the sole contractor of formula for WIC recipients in 49 states. This has made the shortage much worse, especially for the poorest babies. About a month ago, the Senate passed a bill to finally allow people who use WIC vouchers to feed their babies to buy whatever formula is available — and while that helps, it doesn’t deal with low stock overall, nor does it deal with the underlying problem of rampant poverty and no social safety net for families in the United States.
5. We can’t just import European products.
To the layman, the obvious solution would be to import foreign formulas to cover the gaps in inventory — and while there have been reports of formula shipped from abroad, regulations won’t allow for this to nearly cover the formula shortage.
The reason: Any food product brought into the U.S. for distribution must meet notoriously-strict FDA labeling requirements. The differences between U.S. and European formulas make FDA approval a rat’s nest of red tape.
European formula is sold in two stages — Stage one, for newborns to six-month-olds, and Stage two for six to 12-month-olds. The FDA, on the other hand, requires formula to be labeled for and nutritionally complete for newborns to 12-month-olds. Most European formula doesn’t meet that requirement.
The United States also has trade agreements that make FDA-standard formulas hard to import into the United States. Former President Donald Trump’s North American trade agreement, the USMCA, discourages formula imports from Canada, making it hard to plug supply chain holes with otherwise approved foreign formulas. The U.S. also charges a high tariff of 17% on all imported baby formulas. That doesn’t exactly make foreign manufacturers chomp at the bit to export to us.
“As a result of the high tariff and the WIC system, there was not much incentive for foreign producers to sell in the US market, and accordingly the US supply chain is limited to a few domestic producers,” Hufbauer said. “When one of them had trouble, shortages emerged.”
But could Europe make up for the shortage? It would be a promising source: “European producers have traditionally had a surplus of product,” says Melnyk. “American suppliers have turned to lean principles and systems to reduce waste and costs. Such systems typically reduce inventories.” In other words, American suppliers are trying to make a lot of money. Sometimes, that imperative runs up against reality.
6. There are good solutions on the way — for the short-term shortage.
In May, the federal government finally stepped up, months after the crisis began to rear its head. President Biden implemented Operation Fly Formula to allow certain European formulas to be imported via Department of Defense cargo planes and bypass normal shipping routes and enacted the Defense Production Act to help formula manufacturers get the necessary ingredients despite supply chain disruptions. Still, the additional inventory is not expected to plug the hole in our supply chain.
United Airlines flew over 300,000 pounds of formula from the United Kingdom to various airports in the U.S. starting June 9, and the closed Abbott plant reopened in early June to restart production, though, of course, it closed again. It will now take even more time for production to resume and shipping to meet demand.
7. Potential long-term solutions are starting to emerge.
There has been a push, however delayed, to investigate and restructure the formula market to ensure the failure of one facility doesn’t throw the entire system into disarray. A Senate Committee grilled the FDA about delays in responding to the formula crisis when it was brewing; an investigation into the FDA by the Department of Health and Human Services is expected.
The Federal Trade Commission has launched a full-scale inquiry into WIC and is expected to reexamine its formula distribution program as well.
Federal representatives are looking into changing the way WIC sources formula, and what options WIC participants might have to buy other brands in times of crisis so that if another crisis occurs, parents have more options to get formula.
“To diversify the supply chain, and break up the oligopolistic character of the domestic market, Biden should scrap the tariff on imports and replace it with a WIC bidding system with a flat subsidy per unit of infant formula for sales to all eligible manufacturers destined for low-income families,” Hufbauer suggested as one potential solution.
But, change will most likely come slowly, if at all. In the meantime, until the crisis is over, Operation Fly Formula is still in effect. Earlier this month, the third shipment of about 3.7 million 8 oz. bottles of infant formula landed in the United States, adding to the 1.5 million 8 oz. bottles that have already landed in the U.S. as a result of federal action.