“The uproar over infant formula shortages is prompting lawmakers to confront how a federal nutrition program may be helping a small handful of formula manufacturers dominate the U.S. market.
The federal government’s widely-used nutrition program for women, infants and children, known as WIC, is by far the largest purchaser of formula in the U.S., with more than half of infant formula in the U.S. going through the program. And just two companies serve close to 90 percent of the infants who receive benefits through the program, in part because of the way WIC awards its contracts.”
“The Abbott recall and resulting shortages were especially disruptive for WIC recipients. About half of all babies born in the U.S. qualify for WIC, which serves low-income families. Many of these households don’t have the time or resources to drive around looking for alternative formula brands or scour the internet for available stocks. Even if parents and caregivers could find alternative formulas, their WIC benefits might not have covered the specific brand they could find when the shortages first hit.
For the past three decades, WIC has used what’s called sole-source contracting, which is designed to save the program money by allowing the states to buy formula far below retail prices. The National WIC Association estimates that state rebates save about $1.7 billion in costs each year. When a state contracts with a company, all WIC participants in the state use that same manufacturer. Just three companies have been awarded contracts during this time: Abbott Nutrition; Mead Johnson, which makes Enfamil; and Nestle, which makes Gerber.”
““The dirty secret about WIC is these formula companies actually lose money on formula that they sell through WIC,” because the lowest bidder ends up winning the state contracts, explained a former Democratic Senate aide. “But what happens is… if you give birth in a hospital and you request formula, you’re going to get the formula that is whoever has the WIC contract,” allowing the formula makers to reach a massive pool of new customers. Getting a state WIC contract can also mean more favorable shelf space at retailers across the state and more brand loyalty.
Not everyone agrees about the extent to which sole-source contracting has driven consolidation in the formula industry, versus other factors, like overall consolidation across the food sector and high food safety regulatory costs, since infant formula is more highly regulated than most other foods.”
” But the USDA’s Economic Research Service in 2011 found that switching a state WIC contract gave the new manufacturer about a 74 percent bump up in market share in the state. Most of that is the result of WIC participants switching — since they make up more than half the market — but the rest is the result of more preferential treatment at the retail level.”
“America’s current shortage of baby formula is a crisis created, in significant part, by the failures of government policy aimed at protecting domestic companies from foreign competition.
But rather than sweep aside the rules and regulations that have contributed to this mess, the Biden administration and Congress are gearing up to address a problem created by industrial policy with…more industrial policy. We’re now weeks into the crisis, but the best response that our political leaders have been able to muster is an attempt to use public resources to duplicate the market response that would have solved (or at least eased) the mess if it had merely been allowed to operate. The entire saga is a sad and infuriating commentary about the entirely predictable failures of central planning.
Take the White House’s latest idea for addressing the shortage as a perfect example. On Wednesday, President Joe Biden announced plans to send military aircraft to Europe—”Operation Fly Formula,” as the White House is calling it—to bring back formula for American parents.”
“The baby formula shortage isn’t the result of there not being enough planes to transport baby formula from Europe to the U.S.; it’s the result of the federal government making it nearly impossible to transport baby formula from Europe to the U.S.
As Reason’s Elizabeth Nolan Brown explained earlier this week, the Food and Drug Administration’s (FDA) rules that prohibit many baby formulas made in Europe from being imported to the U.S. have nothing to do with health or nutritional safety issues. Often, those brands are banned because they fail to meet the FDA’s labeling requirements.
In addition, the U.S. imposes huge tariffs—technically tariff-rate quotas, which are designed to make it completely unprofitable to import more than a small amount of a certain product—on imported formula. Those tariffs exist for no reason other than to protect domestic formula manufacturers and the American dairy industry that supplies them. As a result, about 98 percent of the formula sold in the United States is produced here as well.”
“Rather than moving to ease those regulations, however, the House of Representatives approved a bill on Wednesday that throws $28 million at the FDA to “boost the part of the workforce focused on formula, as well as FDA inspection staff,” according to CBS News. As if the FDA deserves to be rewarded for its incompetence and over-regulation of baby formula. This crisis demands less from the FDA, not more.”
“The number of babies American women are having continues to fall”
“The total number of births for the United States in 2019 was 3,745,540, down 1 percent from 3,791,712 in 2018. The report notes that this is the fifth year that the number of births has declined after an increase in 2014, and the lowest number of births since 1986.”
“The U.S. TFR is now similar to that of many other countries, including those that make up the European Union (1.543), Australia (1.74), New Zealand (1.71), Japan (1.42), South Korea (0.977), Brazil (1.73), and China (1.69). This mirrors the decadeslong global trend of women choosing to bear ever fewer children over the course of their lifetimes. Global total fertility stood at more than five children per woman in 1964 and is well on its way toward below replacement levels, having now dropped to 2.415 children per woman as of 2018.”
“”In the United States, fewer births and more deaths reduced population growth to a 100-year low,” reports a new study by demographers at the University of New Hampshire (UNH). They add that “in nearly 46 percent of counties, more people died than were born last year.”
As I reported last year, the U.S. total fertility rate fell in 2018 to 1.73 births per woman, the lowest rate ever recorded. In general, the U.S. total fertility rate was been below replacement fertility—the level at which a given generation can exactly replace itself, usually defined as 2.1 births per woman—since 1971.”
“Interestingly, the low—that is to say, negative—population growth in 1919 was largely the result of the decimation caused by the Spanish flu pandemic. Between July 1918 and July 1919, U.S. population actually dropped by 60,000 people.”