Baby Formula Shortage Shows Failures of Federal Policies

As the supply side of the U.S. economy continues to suffer, the ongoing baby formula shortage hammering the nation is showing how the policies of the federal government have made the situation much worse. The combination of market domination by certain manufacturers and ham-fisted regulation by the Food and Drug Administration (FDA) have created an artificial shortage caused by unnecessary restrictions on production.

Abbott dominated the market for baby formula in the U.S. before it shut down production at its Michigan facility months ago. It held 40% of the market share at the time a dangerous bacterial outbreak led to the death of two American infants who consumed the company’s product.

The bacterial disease is not the only cause of the supply crisis, however. The federal government has policies in place that compel states to pick a single baby formula supplier. The FDA also places severe restrictions on the power of the free market to act quickly to provide resilience in times of supply crisis.

Federal law has operated since 1989 to stifle competition and robust production in the baby formula industry by forcing every state to select a single provider of formula for low-income families under the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC).

WIC currently provides food to about half of infants born in the U.S. The rules requiring a single provider per state has led to Abbott, Reckitt, and Nestle being the only three active participants in the market.

Rep. Cathy McMorris Rodgers (R-WA) told Yahoo Finance in regard to congressional hearings last week on the baby formula crisis that market consolidation and FDA regulatory inefficiencies are severely limiting the likelihood of new producers entering the market.

Rodgers said that new manufacturers have faced the prospect of waiting years for authorization to enter the market because of FDA “red tape.” She said that she has introduced legislation in the last week that would impose deadlines on the FDA to act on requests from prospective manufacturers.

The small handful of producers who have managed to survive FDA regulations and the WIC rules that eliminate competition now control around 90% of the American baby formula market.

The Biden administration is predictably acting in response to the crisis by moving to import baby formula from other countries rather than addressing the ways in which the federal government is placing shackles on the power of the American economy to produce products urgently needed by the public.