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Regulation

How Bad Government Policy is Fueling the Infant Formula Shortage

Trade restrictions and over-zealous FDA regulation are a big part of the problem, but there's more.

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Parenting can be stressful, especially for first-time parents. In 2022, many parents are having a particularly rough time because of a nationwide baby formula shortage. Retailers are placing limits on how much formula parents may purchase at one time, and in some parts of the country, a shocking percentage of store shelves are empty. Here's a map showing which states were hit worst by the shortage in early April.

Some parents who were relying on formula can switch to breast milk, but that's not always an option. Many parents supplement breast milk with formula, and there are a range of reason why some mothers cannot breastfeed at all.

Why is there such a formula shortage? The proximate cause was a recall of formula produced by Abbott, but that was only the triggering event. In a well-functioning market, any temporary shortage caused by the removal of one company's product from the market would be addressed relatively quickly. Why hasn't that happened here? Certainly the pandemic played a role, as it has in lots of product markets, but so has federal policy. In other words, if you're having a hard time finding infant formula, you can thank Uncle Sam.

As explained in this excellent and highly informative post by Scott Lincicome, a combination of arguably well-intentioned policies have combined to magnify the effects of the Abbott recall and prevent American consumers from having access to alternative supplies. These include tariffs and quotas on infant formula imports, Food and Drug Administration regulations, and other government policies that both constrain imports and reduce the incentive for foreign producers in countries like Canada to invest in production that could help serve the American market. (Note to my MAGA readers: Trump's renegotiation of NAFTA helped make these products worse in an effort to "protect" American formula producers from Canadian producers.)

There are steps the government could take to ease the shortage, such as removing or temporarily suspending FDA rules that bar the importation of infant formula from countries. And, no, this does not mean accepting formula from China. Current FDA rules bar the sale of infant formula from Europe if it does not have FDA-compliant nutritional labels! Let that sink in: Infant formula that is perfectly safe and that is produced in accordance with European standards that are at least as stringent as US health and safety requirements, cannot be imported because the FDA has not reviewed and approved what is printed on the package, which is a costly and time-consuming process for producers.

So while you might think formula from Germany or The Netherlands is safe enough for your child (formula available in Europe tends to meet or exceed the FDA's nutritional requirements, but not the labeling requirements), the FDA will not let you have it because it has not reviewed and approved the label or inspected the production facilities overseas. Reasonable people can debate whether this is a reasonable policy in normal times, but in the current mess this sort of rule undermines the health and development of the infants the FDA purports to protect.

But it is not simply restrictive trade policy and excessive FDA regulation. Other goverment policies, such as dairy marketing orders and the structure of the WIC program, added additional fuel to the fire.

Lincicome sums things up nicely:

Bad U.S. policy surely didn't cause the infant formula crisis, but it just as surely made the situation worse than it needed to be. Trade barriers and poorly designed welfare policies helped create a brittle system dominated by a few domestic players—a system that might muddle through in the good times but one that crumbles in the face of a serious shock and struggles to recover thereafter. Meanwhile, American consumers (here, babies and their already frazzled parents) are left in the lurch, and world-class foreign producers can't help much because they lack the necessary paperwork and financial incentives or because past U.S. policies have discouraged them from setting up official distribution channels or new facilities to serve the American market.

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  1. All of that and effective antitrust enforcement.

    1. What antitrust issues do you think need enforcement here?

      Infant formula is produced by multiple companies both in the US and abroad. Nestle is the largest single producer of infant formula but even they only have 20% of global market share (based on the last reliable data I could find).

      1. Yes, and if people could buy formula directly from any manufacturer worldwide, that might be interesting. But what are US market shares? And what about retail? In a properly competitive (retail) market, how can availability of formula vary so much from state-to-state? The only way that happens is if concentrated retailers and/or manufacturers have non-resilient supply lines that break down.

        1. In other words, you don't have any idea what you are talking about, yet immediately jump to anti-trust. You just know those filthy capitalists are doing something wrong!

          And what the government is doing wrong, in many different ways? Pffft, unproven, and they have the best of intentions anyway, so pffft!

        2. The #1 and #3 suppliers in the global market are both US companies. While I can't find reliable numbers on recent market share specific to the US, I have no evidence that there is any unreasonable consolidation. A quick check of online stores (which shows brands regardless of whether they are currently in-stock) suggests that there is plenty of competition in this market. What evidence do you have to the contrary?

          Note, by the way, that state-to-state variability can not be evidence of antitrust unless you are alleging a collusion to not compete in certain geographies. That sounds more like conspiracy-theory thinking than a plausible allegation.

          Non-resilient supply lines, on the other hand, is a potentially serious problem. But that has nothing to do with anti-trust.

          1. "suggests that there is plenty of competition in this market"
            Yes. My wife works for WIC and the problem started with "I can't get the particular formula that my baby will drink" and has evolved into there not being enough formula overall because those other people had to switch to new formulas.

    2. The lawyer run FDA commits the exception fallacy. A tiny fraction of people has an adverse event, likely from host factors. Let's recall everything. This is from fear of ruinous litigation. We are sick of the most toxic occupation in the country. It has to be crushed to save the country. Thank the plaintiff bar for your thin, malnourished baby.

  2. Worth mentioning also is that the FDA also failed in their role as an inspector and regulator of Abbot, before, during, and after they manufactured and distributed formula that killed two babies. FDA is a public health menace.

    1. Two babies killed vs how many were fed? Seriously, zero risk is an impossibility.

    2. This is an interesting burden you have here.
      I mean, the FDA didn't do their job *well enough*, so they're the menace?

      I'm willing to believe the FDA needs reform - in fact, I'm convinced it's agency captured in a deep and troubling way. But spare some anger for the ones who made the formula, eh?

      1. Nah, Sarcastro, to those who hate government, it's always the government's fault.

        1. The formula shortage is not the government's fault and no one is claiming it is. However the government is standing in the way of fixing the shortage.

          1. Matthew, to a certain extent I agree with you, but here's the thing: There is no such thing as a policy (including a policy of doing nothing) that produces optimal results 100% of the time. Even in the case of a regulation that clearly makes life better most of the time, you will still find occasional instances of bad results in specific cases. That's life.

            I would support temporarily suspending these regulations until the formula shortage is over, but that doesn't mean that labeling requirements aren't generally a good thing. And that is the part that's missing from this post. If you want to advocate a temporary suspension of the rules, fine, I'm on board with that. But also make the point that it's not a bad rule; it's a generally good rule.

            1. "Even in the case of a regulation that clearly makes life better most of the time, you will still find occasional instances of bad results in specific cases. That's life."

              That's why flexibility is needed to make exceptions to policy in those specific cases where policy produces bad results.

              The problem is that the way executive regulatory agencies are structured generally makes them incapable of the needed flexibility. This is a structural problem with large government in general.

              1. It's a structural problem with large anything in general; you seriously think IBM or General Motors or Chase Bank are any less bureaucratic than the federal government?

                1. Bureaucraticness scales exponentially with the size of an organization.

                  The US Federal government is much larger than IBM, GM or Chase bank, so yes, the federal government is more bureaucratic than those companies.

              2. "This [lack of needed flexibility] is a structural problem with large government in general."

                You're right, but this bug isn't a characteristic only of large governments. It's a bug in any system where policy has been formalized into procedure. This is why you've got to be super-careful of what you formalize.

                As an example, in another recent Reason article there's a tale of how a woman wasn't allowed to watch children at play in a schoolyard, even through a chainlink fence. A security guard came over and told her that it was against the law and she had no flexibility about it.

                Of course, the Law itself is nothing but a formalization of policy into procedure, which means you probably can swing a law book in any direction you choose and run into this effect.

                1. "You're right, but this bug isn't a characteristic only of large governments."

                  And I nowhere claimed the problem was unique to government.

                  However, the scale of the problem tends to be larger in government.

          2. I would fire the FDA officials proposing a recall. I would arrest and execute the plaintiff bar who caused a fear of ruinous litigation. They are mass murderers. The judges who allow these cases to proceed should also be arrested.

        2. " Nah, Sarcastro, to those who hate government, it's always the government's fault "

          The Volokh Conspiracy -- Official Legal Blog Of Anti-Government Cranks.

          1. Rev. STFU until you act woke, and stop that big woke talk. It is puffery, garbage, unless you resign your law firm job and interview your diverse replacement.

      2. Obviously the biggest contributor to and initiator of the problem is Abott.

        The government contribution is that their policies render the problem difficult to impossible to solve.

        Whichever is worse I guess is up to you to say. If either party were to quit contributing their issues to the problem that would be the end of it. So I guess they’re equally culpable?

  3. I'm with you inasmuch as the FDA is a prototypical slipshod, incompetent bureaucracy that has kept the largest US baby formula manufacturer shuttered for 3 months and counting in the midst of the worst shortage of our time for Very Important Reasons they can't seem to articulate.

    But there was ultimately no connection between Abbott's formula and the handful of Cronobacter sakazakii infections, as discussed for example here:

    All four infants had each consumed different types of formula produced over a nearly yearlong period, and their illnesses took place in three separate states over a period of several months, the company statement said.

    In all four cases, state or federal food safety regulators tested samples of the formula used by the sick infant and, in each case, the unopened containers tested negative, according to the company. And genetic testing of samples from the two ill infants also showed that they were infected with different strains of Cronobacter than the type found in the Sturgis plant, the company said.

    1. Misthread -- that was a reply to Christina.

  4. Biden can order FDA to open the Abbott plant. Today. FDA is part of HHS, all it takes is a phone call.

    1. And why do you suppose he hasn't?

      1. He doesn't care enough I guess. No left wing activists screaming about it.

        WH didn't even acknowledge the problem until yesterday.

        1. He intended to but he keeps forgetting.

        2. Say what you will about Trump, but he'd have a press conference with the makers of baby formula in the room, say some bromides, and everyone with serious looks on their faces would not sagely. He'd likely schmooze behind closed doors, and within few weeks after government got out of the way, there would be no baby food shortage anymore.

      2. Because serving the public isn’t a Democrat value.

        1. OK, so none of you (Bob, Matthew or Ben) actually knows.

          I don't know either, but in general, it's been my experience that there's usually a valid reason. And in an election year, it makes zero sense for a president of either party to exacerbate a baby formula shortage. So maybe you should hold your fire until you know why that factory hasn't been re-opened (assuming it hasn't). I know it's more fun to rage about how stupid and incompetent and uncaring the government is, but whenever I've had occasion to examine the government's reason for doing something, there's usually been a reason.

          1. Trying to reason with disaffected clingers?

            Optimism can be valuable, but you're wasting your time.

            1. Rev. Just STFU, you hypocrite. Resign, now.

            2. Is trying to reason with them any greater a waste of my time than calling them disaffected clingers is a waste of your time?

              1. Labeling losers helps others.

                What is the ostensible point of trying to reason with belligerent ignorance, bigotry, or superstition?

                Thank you.

                (Here's another that might have been forgotten.)

          2. KryKry. If there was a paper work problem, and not a serious threat to safety, the officials should be arrested and executed for murder.

            1. When there is a serious catastrophe, you analyze the multiple factors that came together in a place and time. You address each in a system wide way. You prevent the next time.

              Thanks to you lawyer scumbags, what happens instead is a cover up. Without a cover up, all data are used in discovery in ruinous litigation. You scumbags are the cause of all preventable catastrophes in the US. You are 1000 times more toxic than organized crime, and must be crushed. Round up the hierarchy of the scumbags, try them, execute them for insurrection against the constitution. That is my utilitarian analysis.

              1. KryKry. Unless Congress approved FDA regulation, it is void. So says, Article I Section 1, giving all legislative power to Congress.

            2. Daivd, it could be any number of things. There may be a safety issue, there may be a supply chain issue, there are lots of reasons why any particular factory may not be open. And since we don't know, don't automatically assume the worst.

              1. If it can be shown, it is intentional to increase profits, they should be fully deterred.

          3. "whenever I've had occasion to examine the government's reason for doing something, there's usually been a reason"

            Duh.

            Really, do you consider this some sort of wisdom?

            There is a reason for every action under the sun. The question is if there is a good reason.

            1. But Bob, we've already established (1) that you don't know the reason; and (2) that not knowing the reason didn't keep you from blaming Biden. If and when you find out what the reason is, get back to us, and we can then discuss if it's a good reason or a bad reason.

              1. If and when you find out what the reason is, get back to us, and we can then discuss if it's a good reason or a bad reason.

                When a huge swath of parents in the country are consistently having trouble acquiring adequate nutrition for their babies, there are few if any "reasons" (aka excuses) that would justify keeping the largest formula plant in the country shut down for 3+ months. In the unlikely event such a justifiable "reason" actually exists, I would expect to see it plastered on the front of the newspapers rather than having to go on a treasure hunt to find it.

                Turns out the only thing that's plastered on the front of the newspapers is that the administration just now realized there was a crisis.

                This latest and greatest self-induced bureaucratic snafu is pathetic and reprehensible. Why you would choose something like this to play reflexive, blind contrarian is beyond me.

          4. "president of either party to exacerbate a baby formula shortage"
            Both the president and Congress have exacerbated many shortages over the years. Oil, food, land, housing. Whenever Puerto Rico has a disaster the President and Congress exacerbate the disaster by doing nothing at all.

            1. Nothing at all?

              How soon they forget!

              Or maybe they don't.

              Carry on, clingers.

          5. The reason they don’t do [a specific thing] may be unknown.

            The reason they don’t do [anything] is far easier to understand.

            1. Not necessarily. There is such a thing as the law of unintended consequences.

              1. ^ It's hard to guess what people are trying to say when you only hint at it like this.

                There are, indeed, consequences that may not be intended. How that idea relates to any other part of this discussion is .... ?

                If there's a problem and someone isn't doing anything, there are conclusions to be drawn from that. If you observe their apparent interest in the subject and their history, it becomes a lot easier to guess which conclusion is right.

                - What are they doing? Seems like nothing.
                - What is their apparent interest? Seems low to non-existent.
                - What types of things do they act quickly on? Anything to divide Americans and fight culture wars. Also green religion stuff.
                - What types of things do they act slowly on? Anything not uniquely concentrated on their very specific client voter groups.

                Hence the conclusion that they're doing nothing because it's not their area of interest.

                1. You are familiar with the fallacy of undistributed middle?

                  This goes back to my very first comment on this thread: Your inclination is to blame government, so you blame government. That there might be other factors at work doesn't enter in to your analysis.

                  1. I suppose you have to ask, are there baby shortages elsewhere in the world, Europe particularly? The answer is no. Therefore, what item is the most different, all else being the same, between Europe and America, when it comes to baby food.

                    Given that counterfactual, blame of the government makes perfect sense.

                  2. What prevents someone from buying baby formula that’s safe for European babies, chartering a cargo flight to fly it here, and selling it to parents? Government prevents it.

                    What keeps the Biden administration from telling the FDA to hurry up and approve safe products for sale to hungry American babies? Not caring enough about Americans to bother doing anything.

          6. "OK, so none of you (Bob, Matthew or Ben) actually knows."

            I didn't claim to know. My response on this was just a joke picking on Biden.

            The main problem (from a government perspective) isn't why the plant is closed or why it's being kept closed. Its that the FDA won't relax import restrictions even temporarily so that the lost supply can be replaced from elsewhere.

      1. So Biden took my advice. Good

  5. If the FDA's "standards" were applied to the FDA it would be shut down immediately.

  6. The fact that formula carries a high price (on both the regular and gray market) and is one of the most frequently stolen items from grocery and drug stores I'm sure has nothing to do with it at all either.

    1. I did notice about 5 years ago you'd start to see it locked up with the multi-blade razors in your typical drug store.

    2. Not really, no. There's not enough shoplifting to severely deplete most mass produced goods. Stores also plan around shoplifting well in advance, knowing approximately how much is going to be stolen in a period of time, so manufacturers know how much is going to be expected of them. Claiming without evidence that shoplifting of specifically formula has dramatically increased but not other commonly stolen goods irresponsibly overlooks the much larger supply issue.

      1. Reasonably speaking, a shortage of an already highly stolen item might lead to more shoplifting of said items (if they are not locked up), like how when baby formula does appear on the shelves in location X, instead of buying 1-2 tubs, people buy 3-4 knowing it will be awhile before they get them.

  7. So, since Republicans are complaining about the baby food shortage the most, does this at least partially put the lie to the argument that the left makes that they don't care about babies once they are born? Or is it, cynically, all optics? Both?

  8. The US should not be importing any food (or drug) products, including precursors, from any foreign country - especially China. It is a matter of national security and wellbeing. China has demonstrated in the past that they're OK with letting toxins into foods, and if they get caught, they'll just find a scapegoat or two, kill them, and expect the US to roll over for a belly rub.

    1. No one was talking about importing formula from China. The talk was of importing formula made in Europe.

  9. The FDA should be abolished.

  10. What is left undiscussed here is that the current WIC mechanism acts as a hidden tax, with unsubsidized formula buyers providing much of the subsidy for the WIC participants.

    This common mechanism, with its companion market protection for the suppliers, is classic fascism. Not Nazi, but fascist. The government and industry working together to fix the market in a way which enriches the participating companies while avoiding out and out corruption, or even much cost to taxpayers.

    See also electric and natural gas consumer rates.

  11. Summary: fix prices, protect markets, expect shortages.
    A law of economics as predictable as gravity.

  12. "Some parents who were relying on formula can switch to breast milk, but that's not always an option. Many parents supplement breast milk with formula, and there are a range of reason why some mothers cannot breastfeed at all."

    Yup. The argument that women should just switch to breast milk doesn't work any better in this context than it did when Psaki tried it with oil leases.

  13. So, this is an interesting situation, and a confluence of events.

    Event 1: Recall at a factory. That happens, on occasion. It was the immediate precipitating event.

    Event 2: COVID supply-demand issues. COVID has created stresses. In addition, there was a stockpiling event in 2020, which led to people burning their stockpiles in 2021 (thus not buying formula), followed by a resurgence in demand in 2022 (as well as less people breastfeeding). Coupled with event 1, this happens.

    Event 3: A limited international market. It's not clear to me this is necessarily a bad thing. The US is a large market. If the US formula market was fully opened up to international supply and demand, it would be liable to the same issues of the world market. If there's a shortage in China, there would then be a shortage in the US. By keeping a US-based supply (through tariffs/regulations) that limits the exposure). Anyway...

    Event 4: The WIC sole source contracts. This....This could be fixed. Turns out the states (via WIC) sole source contracts for formula. This creates ENORMOUS monopoly-like savings. This was likely the issue....and may be needed to be changed.

  14. "In a well-functioning market, any temporary shortage caused by the removal of one company's product from the market would be addressed relatively quickly."

    No market subject to federal government regulation is a well-functioning market.

  15. And that policy is fueled by those who hate mean tweets!

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