Baby formula is not controversial, nor is it usually scarce. These days it is both, and Americans want to know why. Some have begun to suspect that dark forces are lurking in the shadows of the baby formula aisle at the store but, as Eric Eggers reminds us in the latest episode of The DrillDown, “never mistake incompetence for conspiracy.”
The shortage of baby formula is real enough. Nationwide, 40% of brands are out of stock in grocery store shelves. In some states, up to 90 percent of brands are out of stock, according to some rece
nt reports. What is going on here? As Peter Schweizer reminds us, a few very key things are distorting the baby formula market. And they are the result of, you guessed it, government policies.
As you would expect, the production of baby formula in the United States is heavily regulated by the Food and Drug Administration (FDA). As often happens in highly regulated industries, the more regulations the more likely a few large players will dominate the industry. There are four main manufacturers in the US – Abbott Laboratories, Mead Johnson, Perrigo, and Nestle. The first two of those together control about 80 percent of the market. Imports account for just 5 percent of the market. Why?
During the Trump administration, the tariff on imported baby formula was raised to 17 percent in an effort to protect the domestic industry. Foreign producers from Europe face a large barrier to selling their product in the U.S. As Peter notes, health and safety requirements are even more strict in the European Union, but the tariff means these products are significantly more expensive than domestic offerings.
There is even a black market for baby formula. Recently, the US Border Protection Agency busted an illegal shipment of 588 cases of baby formula from Europe at the port of Philadelphia. This may not come as a surprise to American consumers who have noticed that baby formula is, like cigarettes, often sold from behind locked glass in stores.
Eric jokes about baby formula smugglers thinking “they are ‘Scarface.’ No, you’re not,” he says. “You’re the Wiggles.”
So, government policies affect the marketplace. Is that all?
Sadly not. The surging flood of illegal immigrants through America’s southern border plays a strong role, too. It may surprise you to learn that the federal government is the largest consumer of baby formula as well. Supporting about half of the nation’s infants, the Women, Infants and Children program (WIC), administered by the U.S. Department of Agriculture, buys between 57 percent and 68 percent of all the infant formula sold in the US. Because immigrants coming through the southern border often include families with infant children seeking a better life in the US, the federal government has had to step up its own purchases of baby formula to take care of the influx of immigrant mouths to feed.
Peter discusses other regulatory failures, such as a report from a whistleblower at an Abbott Labs factory to the FDA. The report, sent to the FDA last October, was not even noticed by the FDA until March. The FDA blamed its own mailroom for the fumble.
As Eric said at the top of the show, incompetence is usually a better explanation than conspiracy. Nevertheless, conspiracy theorists have grasped at other things in frustration. The most outlandish is that the current baby formula shortage was created by Microsoft co-founder Bill Gates because he invested in a company that makes artificial breast milk. This claim, like other conspiracy theories, has some small basis in fact. Gates is an investor in a startup called Biomilq, which is in the research and development stage of producing synthetic breast milk from cultured human mammary cells. The Associated Press fact-check of this claim notes that even if the company were producing an actual product for sale, which it is not, the small amounts would have no noticeable effect on the availability of baby formula. But conspiracies are always more compelling than facing up to quotidian matters like excessive regulation, protectionism, and bureaucratic incompetence.