In the two years since COVID first arrived in the US, Americans have had to

get used to things being out of stock. Refrigerators, stoves, washers—at various

points, global supply-chain issues have meant that each of these has been tough

to come by. But while those stock-outs may have been annoying, Americans today

are dealing with a shortage that’s actually serious: a dearth of infant formula.

In the first week of May, the national out-of-stock rate for infant formula was

43%, and there’s no sign that things have improved since. And this supply-chain

problem is different from those earlier ones in two ways. First, formula is not

a product you can afford to wait for. (Babies need to be fed!) Second, this

problem is largely self-inflicted.


The proximate cause of the shortage was the shutdown of Abbott Laboratories’s

formula factory in Sturgis, Michigan, and the company’s voluntary recall of

powder-formula products made there, after FDA inspectors found a bacteria called

Cronobacter inside the plant. (Months earlier, four infants who consumed formula

from the factory had become ill with Cronobacter infections, and two had died,

though Abbott says that the illnesses were not caused by consuming its

products.) But the reason that shutdown was so consequential is that we’ve

created a system in which almost all the formula consumed in the US is made by a

small number of companies in a small number of factories; taking just one of

them offline has massive ripple effects across the economy. Parents in Canada

and Europe aren’t having any trouble finding baby formula. It’s only American

parents who have been left scrambling.


The numbers behind the crisis are pretty straightforward. Three

companies—Abbott, Mead, and Nestle—account for the vast majority of formula sold

in the US, and Abbott alone has more than 40% of the market—and 98% of the

formula sold in the US is made in the US In other words, there is essentially no

foreign competition. While countries like Germany and Switzerland have robust

infant-formula industries, their companies sell almost nothing here



That’s not because of a lack of demand for or interest in European baby

formula; on the contrary, you can read myriad stories online about American

parents going to great lengths to import formula made by companies like HiPP and

Holle. Instead, there are no almost-legal imports from Europe because we have a

tariff and regulatory system effectively designed to keep them out.


That system starts with tariffs. imported baby formula is subject to a tariff

that’s typically 17.5%. On top of that, there’s an abstruse tariff-rate quota

system, which means that once a certain amount of formula is imported from a

country, it gets slapped with an extra tariff in addition to the original one.

So any foreign-formula manufacturer who wants to sell its products in the US is

going to be at a serious cost disadvantage to the Abbotts of the world.


To even get to that point, though, foreign-formula manufacturers have to

satisfy not only the FDA’s nutritional requirements but also the agency’s

surprisingly detailed labeling requirements. The FDA doesn’t officially approve

infant formulas (the way it approves, say, drugs). But any product that doesn’t

meet its rules—which include things like how ingredients should be listed on the

label—can’t be sold in the US.


None of this is because European infant formula doesn’t meet US standards: A

2019 study of 13 brands found that all of them met 15 out of 16 nutritional

requirements. Indeed, the EU has its own nutritional requirements, which have

actually been updated more frequently than those in the US.


The key here is that all these restrictions fit together to keep foreign

producers out of the market. The economic incentives to go to all that trouble

and expense are small because the tariffs and tariff-rate quotas limit their

potential sales and profits. So they’ve understandably chosen not to enter the

US market, leaving it to the big domestic players.


It should be said that the motivation behind the FDA requirements is

understandable. But in practical terms, the concern with safety has become a

recipe for protecting the current oligopoly of formula manufacturers in the US

And this is not a problem only in the infant-formula market. You can see a

similar phenomenon at work in the generic-drug market, where FDA rules often

mean that US consumers have only one choice of drug—and have to pay through the

nose for it—even when there are multiple versions of the drug being made in



In a broader sense, what the infant-formula crisis speaks to is the fact that

setting up barriers that make it harder for Americans to buy stuff from the rest

of the world—which is something Donald Trump did a lot of, and that Joe Biden

has done little to roll back—makes the US economy more vulnerable, not less, to

supply shocks. Free trade has become oddly unpopular in Washington, D.C. over

the past six years. But the infant-formula market could use a lot more of



来源:Fast Company