US Launches Investigation into Industry Role in Infant Formula Supply Shortage

A dire shortage of baby formula has prompted the Federal Trade Commission to launch an investigation into industry consolidation and whether online resellers have taken advantage of desperate families struggling to find formula.

“The FTC is launching a public investigation to identify factors that contributed to the shortage or hindered our ability to respond to it,” Lina M. Khan, the agency’s president, said in a statement Tuesday. “Learning from this experience can help determine how we can minimize the risk of similar shortages in markets for other life support products.”

The agency said it would examine merger and acquisition patterns to better understand how the industry, now dominated by four manufacturers, became so concentrated and how that consolidation should inform future merger reviews. The FTC will also examine federal regulations and trade barriers that prevent foreign companies from entering the infant formula market.

Federal officials are also seeking public input on cases in which families believe they have been scammed when trying to buy formula or have been forced to pay exorbitant prices from online resellers.

The US infant formula industry has come under intense scrutiny in recent weeks, with lawmakers and consumer advocates questioning why the production of a critical source of infant nutrition has long been controlled by just a handful. of players. Abbott Nutrition, which controls about 48 percent of the market, caused chaos in the baby formula market in February when it voluntarily recalled some of its most popular powdered formulas and closed a plant after four babies who had consumed some of Abbott’s products got sick from bacterial infections. Abbott has said there is no evidence its formula caused the four illnesses, and no samples of the bacteria, Cronobacter sakazakii, from babies have matched the strains found in the plant.

The dire shortage has left parents frantically searching for food for their children and stores limiting sales of infant formula. The Biden administration has taken steps to ease the supply gap, including invoking the Defense Production Act to ramp up manufacturing.

The investigation follows growing calls from lawmakers to investigate and review the industry. Sen. Tammy Duckworth, an Illinois Democrat, urged the FTC this month to launch a comprehensive study of the industry and market conditions that have caused the shortages.

The FTC said it would work with the Department of Agriculture to examine the impact of a program that aims to help low-income families buy formula and has helped large contract companies become giant industry players. The Special Supplemental Nutrition Program for Women, Infants and Children, better known as WIC, is a federally funded program that provides grants to states to ensure that low-income pregnant or postpartum women and their children have access to healthy food. . Administered by state agencies, the program purchases more than half of the entire infant formula supply in the United States.

State WIC agencies cannot legally purchase formula from any manufacturer. They are required to submit competitive bids for contracts and select a company, which becomes the exclusive provider of formula for all WIC recipients in the state. In exchange, the manufacturers must give the states significant discounts for the formula.

The researchers say the bidding system could make it harder for smaller companies to enter the market. Brands that secure exclusive contracts gain more prominence in stores, boosting sales among families who don’t receive WIC benefits, according to research by David E. Davis, an economics professor at South Dakota State University.

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