The US Can’t Figure Out How to Prevent Baby Formula Shortages

Tatyana Monnay
·4 min read

(Bloomberg) -- US lawmakers are trying to maneuver around strict trade policies, inflexible government-welfare programs and intense agency oversight to boost domestic production of infant formula and prevent a repeat of the 2022 supply shortage.

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Congress and the White House devised a patchwork of solutions aimed at getting formula back on store shelves after a deadly bacteria contamination forced Abbott Laboratories to shutter its Michigan factory. But none of those efforts, including invoking the Defense Production Act and waiving high tariffs on formula imports, prevents another shortage.

Food and Drug Administration officials and lawmakers have yet to coalesce around one solution, but most agree that consolidation in the market — driven largely by US policies that make it difficult for new entrants — needs to be addressed.

Abbott’s plant in Sturgis had been making about 20% of the country’s infant formula, including Similac, the most popular US brand. Its competitors — Mead Johnson Nutrition Company, Nestle SA and Perrigo Co. — couldn’t make up the shortfall when the factory closed.

“There’s just absolutely no room for adjustment when something goes wrong,” Gabriella Beaumont-Smith, policy adviser at the Cato Institute, said.

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And something — quite possibly an ingredient shortage, labor issue or a natural disaster — can always go wrong. Last month, Reckitt Benckiser Group Plc said it was voluntarily recalling about 145,000 cans of Enfamil Prosobee Simply Plant-Based Infant Formula because of a potential cross-contamination with bacteria.

Record inflation and pandemic-induced supply chain issues have further exacerbated the problems the industry faces.

While current formula supply is similar to pre-crisis levels, many Americans say they still struggle to find formula in their stores, according to the latest Census Bureau survey. An FDA official acknowledged that some parents are still struggling to find specific formulas and said the agency cannot solve this problem on its own.

The FDA is collaborating with other federal agencies to create a national strategy addressing baby formula while lawmakers redy their own proposals.

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Representative Rosa DeLauro of Connecticut is working on a bill related to manufacturing with Democratic Senator Bob Casey Jr. of Pennsylvania. The bill would connect small- to medium-sized formula makers with manufacturers to diversify the nation’s limited market.

“The purpose of legislation is to deal with how we can encourage better competition and how we can uplift small manufacturers because we do have small manufacturers,” DeLauro, the top Democrat on the House Appropriations Committee and the chair of the House Baby Caucus, said in an interview.

Republican Senator Marco Rubio of Florida and Democrat Representative Ro Khanna of California are taking aim at the baby formula industry as part of a broader effort to boost manufacturing in the US. Their bill would create a national economic development council and allocate $20 billion from the Treasury’s Federal Financing Bank to be invested into sectors recommended by the committee.

The effort seizes on last year’s bipartisan Chips Act, which dedicated about $50 billion to expand the US semiconductor industry, to expand to other industries.

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“Semiconductors remain in low supply, medicines can be difficult to buy and many parents are still struggling to find baby formula,” Rubio said. “We cannot allow these supply chain shocks to become routine. Instead, we need to focus on making our supply chains more resilient.”

Their effort hasn’t picked up cosponsors in this Congress, but lawmakers generally have expressed interest in strengthening US industry in a number of areas.

“Consolidation hasn’t been addressed like it should,” Democratic Senator Amy Klobuchar of Minnesota said. “I would love to change some of our laws on the books not just for baby formula but in general.”

Several Republicans who were behind the effort to temporarily waive tariffs on imported formula want to see the waivers renewed after they expired in December.

“This crisis isn’t over,” Senator Mike Lee of Utah, lead sponsor of the waiver, said. “I’d love to see a softening of the import restrictions, especially during the full duration of this shortage we are seeing.”

Beaumont-Smith of the Cato Institute said increasing imported formula is one of the easiest solutions. Imported formula tariffs can be as high as 17.5%.

“Baby formula is a clear necessity, and we shouldn’t be taxing it,” Beaumont-Smith said. “I don’t think there should be a tariff rate on infant formula whatsoever.”

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