A baby formula shortage sheds new light

... on me and government regulations

I know what you must be thinking when looking at this picture. These kids appear to have been fed unregulated FDA baby formula. It’s true. Me and my brothers, in this picture, are a little special and I blame the formula. I didn’t before the current baby formula shortage, but I have now since researching the topic. I can now verify that ignorance really is bliss.

Begin with the Conclusion

Before I explain why me and my 3 brothers in this picture¹ are a little substandard, I want to begin with my conclusion. We do not have a scarce resource problem. We have a mismanagement problem. Behind every persistent shortage, you will find a buildup of government regulations or barriers.

Who and what are the barriers?

• The Infant Formula Act (IFA) of 1980 = FDA

• USMCA of 2020 = trade agreement

• WIC = government welfare program

What is the solution? Get rid of the USMCA tariff or at least lower it.

Now back to my impairments and an explanation of these barriers.

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Pre-1980

My 3 brothers and I were born to a humble middle class couple who had to deal with rising inflation, high mortgage rates and gas shortages during the Carter administration. Sound familiar? My mother did not practice the agent art of breastfeeding so all of us were formula fed. Sadly, I did not know until college that women still breastfeed their children. I literally thought that was a practice left behind in the early 20th century. I have no idea why I thought that in particular, but that discovery was one sad, dark day for me.

That is just one example of why I think my Mom worried that nothing was really going on inside my head as she observed me as a child. She was not wrong. I really was an unimaginative child who did not really think to ask questions. My brothers and I just roamed around and played without many discussions unless it involved arguing about who had to be the runner in “hot box” (aka “pickle”). This is where I believe the formula is to blame. Could it be that the non-regulated FDA formula stunted my growth that prevented me from realizing my athletic talents making it impossible for me to turn pro or… preventing my brain from maturing by making the necessary connections to learn faces, names, social cues, dates, etc.? I have always wanted excuses, and it is sad that it has taken me 45 years to find one. Maybe that is another sign of “Formula Deficiency Syndrome”?

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1980 - The Infant Formula Act (IFA)

Campaign against Nestle

Finally, the FDA decided that they had enough of the Wild West of baby formula. They must do something. Like any crisis, a commission needs to be created before a crisis can be addressed. What was that crisis you ask? Claims of commercial companies, like Nestle, trying to get poor women in Africa hooked on baby formula instead of breast milk which was meant to explain why so many babies were dying. This sparked fear which promotes congressional hearings in the US. According to the congressional subcommittee, the hearing was about a minor salt deduction in the formula that is believed to have given some infants the following symptoms -

• poor appetite,

• failure to gain weight,

• diarrhea, and

• blood in the urine.

Wow! The first two symptoms are totally me.

The next step is to have hearings at Congress. Fortunately, the doctor who noticed these symptoms lived in Tennessee where he could contact his representative - Albert Gore, Jr. After Rep. Gore forms their subcommittee, they attack the problem in 2 ways -

1. Discover the facts surrounding the salt deduction formula, and

2. Discover what powers the FDA has

It is rare to leave a subcommittee or any other congressional committee without some recommendation and more oversight created. People just do not like to think they are wasting their time. Therefore, it is rare that a commission will find nothing and then suggest nothing for the future. Determined to be proactive, Rep. Gore’s subcommittee found that the FDA’s statutory authority was inadequate for what was needed in a response like this.

What happens from all of this?

• FDA authority expands to recall baby formula

• “Infant formula” = designated a food which now falls under FDA

• FDA tells baby companies what are the ingredients that go into formula

• FDA needs to inspect records of manufacturers in order to get approval to sell baby formula in the US

Sounds reasonable, right?

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2020 - USMCA

President Trump is very proud of his re-making of NAFTA to USMCA. They shuffled around letters of the alphabet and made some other tweeks to tariffs, or taxes on goods coming into the country. One theory suggests that tariffs are a way to protect a countries economy. It tries to prevent cheaper products from coming into the country. This makes it less competitive for companies in the US, but it also raises prices for the consumer and gives them less choices. Baby formula is the perfect example because the USMCA introduced a 17.5% tax on baby formula trying to come into the country.

Isn’t it odd that parents in Canada have baby formula for their children and parents in Mexico have baby formula for their children, but parents in the US don’t? That is a red flag that we do not have a scarce resource problem, but a mismanagement of resources problem.

The IFA (1980) and USMCA (2020) are starting to compound the problem -

• IFA requires the FDA to inspect other factories before letting them sell their baby formula in the US. There are strategic reasons for some companies not wanting to do that. So, now they cannot sell their baby formula.

• Other companies who have FDA approval, do not want to pay the USMCA 17.5% tariff. Therefore, supply goes down in the US.

Here is really the crazy and amazing part to me. The FDA has not changed the baby formula ingredients since 1981!! In fact, one study found that baby formula ingredients from Europe are healthier as the EU bans “added sugars, like corn syrup”. Now, I am really jealous that I missed out on that sweet taste.

Why do we need to pay more money for a healthier product? Protection from competition? Does it help us that there are only 4 major manufacturers of baby formula in the US right now?

It is encouraging to see, from this infographic, that we still have time to make changes!

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Special Supplemental Nutrition Program for Women, Infants, and Children (WIC)

WIC is the last piece of this saga and helps us to understand 2 things -

1. Why are there only 4 major manufacturers of baby formula in the US?

2. Why does Abbott labs produce the largest share (42%) of baby formula?

WIC is a welfare program funded annually by the federal government and given to the states to disperse under certain terms. This program has made the federal government the largest buyer of baby formula in the market. According to the Department of Agriculture, “WIC accounted for between 57% and 68% of all infant formula sold in the U.S.”. But they “buy” the formula through a pretend rebate/voucher system that started around 2003. Here is how it goes -

• The women on WIC must buy from a specific manufacturer

• The manufacturer is decided by winning a bid for the state welfare contract

• This gives the winner a monopoly of WIC payments in that state

• The manufacturers offer “states huge rebates on the formula”

• The bigger the rebate = the winner of the state’s WIC voucher

• The bigger manufacturers can offer the bigger rebates

• This bidding process has consolidated the market = 4 major manufacturers

• Abbott labs has 42% of share from this process AND was shut down

These private companies are playing the rules of the game set by government. Is it fair that the government is the umpire and one of the players in the game?

The art of paper shuffling

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Summary of timeline of events -

• Pre-1980s - Me and 3 of my brothers born into darkness and fed baby formula wihtout corn syrup

• 1980 - Infant Formula Act (IFA) - allows FDA control to determine the ingredients and shut down manufacturers

• 1980s - 3 more boys born to my parents and given extra benefits from the FDA regulated baby formula.

• 2003 - WIC - Baby formula manufacturers bid for State’s exclusive contract

• 2011 - All of my 4 children born by this year and benefit from the lack of updates to FDA baby formula + dealing with higher prices of baby formula because of the government bidding wars

• 2013 - WIC - Bidding process has consolidated the baby formula market with the US government being the largest buyer

• 2020 - USCMA - changed the trade agreement and put a 17.5% tariff on imported baby formula = decreases supply

• Feb 17, 2022 - FDA announces investigation into Abbott manufacturing plant + company voluntary recall = hurts 42% of production in the US

• Apr 18, 2022 - Fox Business reports baby formula shortages

• Today - We are all experts on baby formula

What is the answer?

It is actually really simple. Lift the tariffs or at least bring them down below 10%. This would solve the problem overnight, and that is not an exaggeration. From the infographic above, we still have time to make changes to the USMCA.

This is my solution because I do believe it to be the most practical, quick and efficient of the 3 different government regulation issues. The FDA plans to announce a plan soon for baby formula relief. If they start talking about inspecting Abbott factories quicker, then I am not hopeful the formula shortage will end any time soon. I do not pretend that the FDA will come to its senses and update its baby formula or that the government will not continue to expand their buying power of US products for welfare. I do think the most possible action that can do a lot of good very quickly is to bring down the 17.5% tariff.

But… this is just advice from someone who is not operating on all cylinders.

Sincerely,

Me

1. After 1980, my parents had 3 more boys who were able to benefit from the FDA baby formula ingredients rigor, as well as my 4 kids born after 2006. It is a family legacy to bottle feed.