https://fortune.com/2022/05/14/baby-formula-shortage-milk-monopoly-fda/
A baby formula shortage gripping the U.S. since March has parents in a panic over where and when they’ll be able to find the products they need to feed their kids. The out-of-stock rate, representing the amount of formula that’s not in stock compared to what’s typically available, was 43% for the week ending May 8, according to Datasembly, a provider of real-time product data for retailers and consumer packaged goods (CPG) brands. With no easy end in sight, caregivers nationwide have been forced to devote their free time to driving between stores in search of formula, prompting retailers to limit the number of cans customers can buy. Others have turned to Facebook groups and informal support networks to acquire the nutritional products that work best for their kids. “I've looked online, I have my mom in Boston looking, my mother-in-law in Florida looking,” Elyssa Schmier previously told Fortune about her trouble finding formula for her 8-month-old son. “Everyone we know is looking for us and no one can find it.”
How did a baby formula crisis spring up in one of the world’s richest countries? Experts say a recall by one of the industry’s largest manufacturers, persistent supply-chain issues, and a market dominated by only a few players have combined to form what one consumer goods expert calls a “perfect storm” affecting the supply of essential formula to millions of babies across the U.S. And the shortage could last for months.
Here’s how we got here. The baby formula market exists as a shared monopoly, with only a few manufacturers controlling nearly all supply. Abbott had an approximately 43% market share a decade ago, according to a USDA report from 2011 — the most recent number available. Little has changed since then. The company still maintains exclusive provider contracts in many states with WIC, the USDA’s supplemental nutrition program for low-income families, which makes up nearly half of formula sales nationwide. A few other manufacturers, including Mead-Johnson and Nestlé, also have WIC contracts and control the rest of the market. In addition to its highly concentrated structure, the baby formula market is difficult for another reason. Its demand is set by the nation’s birth rate, and the market has been shrinking for years. The number of births has declined every year since 2008, except for 2014, according to the U.S. Census Bureau. With only a few key players whose capacities are tied to a shrinking market, repercussions are inevitable when anything gets in the way of a certain product getting to store shelves. Other manufacturers are bound to struggle with an influx of new demand from consumers who can’t get what they’d typically buy. “The dilemma [manufacturers] have is that it's not a very lucrative market,” says Patrick Penfield, a professor of supply chain management at Syracuse University. “The only way you can grow your market share is if you’re aggressively going after competition.” Because Abbott is one of the biggest players in the game already, significantly expanding its share is not really an option. “If you can't grow your market share, then you look at how you can reduce costs,” says Penfield. “And sometimes when you reduce the costs, you may not have the right protocols or procedures in place to make sure that you're doing things properly.” “I’m not saying that's what Abbott Laboratories did,” he cautions. “But that would be an assumption of mine.”
Abbott is not the only entity possibly at fault. “There's plenty of blame to go around here,” says Scott Faber, a professor at Georgetown University’s law center and vice president of government affairs at Environmental Working Group, a nonprofit aimed at empowering consumers. Faber sees the FDA itself as in part responsible for the shortage. The agency, he says, did not react fast enough to the whistleblower report and should have conducted a plant inspection sooner. “When a drunk driver causes a car crash, the drunk driver bears much of the blame, but so does the bartender who looked the other way while serving one too many drinks,” he says. When submitting the report for the record last month, Rep. Rosa DeLauro (D-Conn.) wrote: “I am equally concerned that the FDA reacted far too slowly to this report. The report was submitted to the FDA on Oct. 20, 2021. The FDA did not interview the whistleblower until late December 2021. According to news reports, FDA did not inspect the plant in person until Jan. 31, 2022, and the recall was not issued until Feb. 17, 2022.” The agency did not finish its inspection and issue observations to Abbott until March 18. The company says that it has been working since then to update its education and training protocols as well as its cleaning and maintenance procedures. “The FDA would not have shut down that factory if they didn’t find anything. So there's definitely some type of noncompliance that's going on,” Penfield says. Now the FDA is working to catch up to a crisis that seems to have been unfolding in slow motion for months.
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