US launches investigation into industry's role in infant formula supply shortages

A severe formula milk shortage prompted the Federal Trade Commission to launch an investigation into industry consolidation and whether...


A severe formula milk shortage prompted the Federal Trade Commission to launch an investigation into industry consolidation and whether online dealers have taken advantage of desperate families struggling to find a formula.

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

The agency said it would review mergers and acquisitions patterns to better understand how the industry – which is today dominated by four manufacturers – has become so concentrated and how this consolidation should inform future merger reviews. The FTC will also review federal regulations and trade barriers that prevent foreign companies from entering the infant formula market.

Federal authorities are also seeking the public’s opinion on cases in which families believe they were scammed trying to buy formula or were forced to pay exorbitant prices from online retailers.

The U.S. infant formula industry has come under intense scrutiny in recent weeks, with lawmakers and consumer advocates questioning why production of a key source of infant nutrition has long been controlled only by a handful of actors. Abbott Nutrition, which controls approximately 48% of the market, shook up the infant formula market in February when it voluntarily recalled some of its most popular powder formulas and closing a factory after four babies who had consumed some of Abbott’s products fell ill with bacterial infections. Abbott said there was no evidence his formula caused all four illnesses, and no samples of the bacteria, Cronobacter sakazakii, from infants matched the strains found in the plant.

Severe shortages have left parents frantically searching for food for their children and stores limiting sales of infant formula. The Biden administration has taken steps to alleviate the supply shortfall, including by invoke the Defense Production Act to speed up production.

The inquiry follows growing calls from lawmakers to investigate and overhaul the industry. Senator Tammy Duckworth, Democrat of Illinois, urged the FTC this month to start an in-depth study of the industry and the market conditions that led to the shortages.

The FTC said it will work with the Department of Agriculture to examine the impact of a program that aims to help low-income families buy infant formula and has helped large companies with contracts become industry giants. 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 pregnant or postpartum women with low income and their children have access to food. Administered by state agencies, the program purchases more than half of all infant formula supplies in the United States.

State WIC agencies cannot legally purchase formula from any manufacturer. They are required to bid on the contracts and select one company, which becomes the exclusive formula provider for all WIC recipients in the state. In return, manufacturers must give states significant discounts on formulas.

Researchers say the tendering system could make it more difficult for small businesses to enter the market. According to research by David E. Davis, a professor of economics at South Dakota State University, brands that win exclusive contracts gain prominence in stores, which drives sales among families who don’t get WIC benefits.

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Newsrust - US Top News: US launches investigation into industry's role in infant formula supply shortages
US launches investigation into industry's role in infant formula supply shortages
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