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Baby formula shortage shows risk of US industry concentration

Madison Muller and Leah Nylen, Bloomberg News on

Published in Business News

Formula isn’t just for babies. April Crohare desperately needs it for her 14-year-old son, Charlie. Due to medical complications from a rare brain disorder called lissencephaly, his only source of nutrition comes from infant formula through a feeding tube.

The Crohares, who live in Maryland, had relied on Abbott Laboratories’ hypoallergenic brand EleCare to feed Charlie for almost half his life until the specialty formula was pulled off shelves in a February recall linked to bacterial contamination at Abbott’s Sturgis, Michigan, facility. She’s been frantically searching for it — or another product her son can digest without getting sick — ever since.

“This was the first time I’ve thought my kid was going to die because we can’t get formula, not because of all of his other medical issues,” Crohare said.

Decades of market consolidation in the U.S. have resulted in problems like the one the Crohares and millions of other American families are now facing. Four companies — Abbott, Perrigo, Nestle SA and Mead Johnson — control 90% of the U.S. supply of formula.

The risks of that concentration only came into sharp relief recently, when the Food and Drug Administration recalled some of Abbott’s brands. That move came after four babies who consumed formula made at its plant were infected with cronobacter — two of them died. Abbott said there’s no conclusive evidence linking its products to the infections and that analysis showed the strains taken from two infants’ samples didn’t match those found at its plant. The FDA did its own investigation into the cases, which it said it has since concluded, but the agency hasn’t provided any information to the public about what it found.

Some people like the Crohares have been scrambling for formula since the recall first started, because they rely on a specialty brand for which there aren’t many alternatives. Other families with less-specific formula needs have seen the problem become worse over time. The recall led to panic buying and hoarding, creating shortages that have spread throughout the country. More than 21% of store shelves that carry formula are bare as of May 15, according to IRI, a market analytics company. San Angelo, Texas, and Topeka, Kansas, are among the hardest-hit areas, with more than 30% out of stock as of May 8.

 

The story of how those shelves ended up empty dates back years: The COVID-19 pandemic disrupted the supply chain for formula like it did for so many other household essentials. It also dates back decades, to the 1972 creation of a federal program to feed infants — the Special Supplemental Nutrition Program for Women, Infants, and Children, more commonly known as WIC.

The USDA estimates that WIC accounts for more than half of the country’s formula market. Some 45% of all American babies were eligible for WIC as of 2018, the most recent year data was available, and nearly all of those who are eligible use the program.

That makes WIC a crucial factor in the formula market, and the way it is structured has led to formula monopolies in the majority of U.S. states. In 1989, Congress mandated that all states adopt competitive bidding for their WIC program. Under that law, states are required to award a formula contract to the lowest bidder, in most cases leaving one company in control of an entire state’s WIC formula allocation.

Abbott has become a major player through this system, with the company now providing the formula for nearly half of the babies covered by WIC nationwide.

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