The Baby Formula Shortage Was Made in Washington The politicians tacitly admit that their policies are responsible.
““I think there might be a need for indictment,” Nancy Pelosi said this week. She means business executives, not Members of Congress, alas.”
Politicians are scrambling to pacify mothers angry about the baby formula shortage, but the one thing they won’t do is look in the mirror. Fixing the shortage requires fixing the government policies that helped to create it.
The shortage began after Abbott Laboratories shut down a plant in Michigan after four infants who consumed formula made at the facility fell seriously ill. Abbott controls about 42% of the U.S. market, and the other three large manufacturers (Perrigo, Nestle and Mead Johnson) haven’t been able to increase production fast enough to compensate. Ergo, empty shelves.
Enter President Biden, who on Wednesday invoked the Defense Production Act. The Cold War-era law lets the federal government conscript private businesses to produce goods for national defense and to reorder supply chains, putting some customers ahead of others. Progressives think government is the solution to every problem, which is why the law has become their household remedy to every product shortage.
Mr. Biden says the law will let his Administration prioritize raw ingredients for baby formula. He also plans to send government planes to fly in supply from overseas. But there doesn’t appear to be a shortage of formula ingredients. Nor is there a problem transporting it. The main barriers to increasing supply are regulatory.
Trade protectionism—including tariffs of up to 17.5%—and Food and Drug Administration labeling and ingredient requirements limit competition. About 98% of U.S. infant formula is made domestically, though it’s no safer than European or Australian products. While FDA has the authority to inspect foreign plants, tariffs make imports less competitive.
Solution: Suspend tariffs and ease labeling and ingredient requirements for trusted partners. The FDA now says it will use enforcement discretion on product labeling and provide a streamlined import entry review process for products from foreign facilities with positive inspection records. But these trade barriers shouldn’t exist in the first place.
House Democrats passed a bill Wednesday that would give the FDA $28 million more to inspect foreign plants. OK, but the FDA’s problem isn’t too little money. It’s too much regulation.
A more helpful House bill would let the Secretary of Agriculture waive rules for the Women, Infants, and Children (WIC) program amid formula shortages. These rules limit new mothers to buying formula from the sole-source contractor in the states, which manage WIC.
Exclusive state contracts effectively give formula providers a monopoly. WIC makes up about half of the U.S. formula market, and Abbott and Mead Johnson have program contracts covering 87% of infants. Many supermarkets only stock shelves with the exclusive state-contractor, and doctors at hospitals are more likely to recommend them. Where are Lina Khan’s Federal Trade Commission trust busters when you really need them?
While the House legislation will help at the margin, broader reform is needed. But Democrats say they don’t have time for bigger fixes—it’s so much easier to round up the usual suspects. They’ve already begun investigating Abbott and other producers. “I think there might be a need for indictment,” Nancy Pelosi said this week. She means business executives, not Members of Congress, alas.
Meantime, Oregon Sen. Ron Wyden is blaming the shortage on—you can’t make this up—the 2017 GOP tax reform. What does one have to do with the other? The reform gives producers more capital to increase supply.
The formula shortage should ease as the Abbott plant comes back online and imports increase. But the lesson for America’s political class is that government policies that limit competition create supply-chain vulnerabilities that eventually bite consumers.
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