Like a baby’s temper tantrum, the infant formula market crash has been building for some time.

The Food and Drug Administration this week announced emergency measures to get more formula in the marketand soothe the nerves of anxious parents facing shortages.

President Biden on Wednesday invoked the Defense Production Act to ensure formula makers are on the front line for all the ingredients they need. Biden also ordered the Department of Defense to use its contracts with commercial airlines to expedite delivery of the formula from overseas.

The formula has been hard to find in parts of the country since suspected contamination led to a recall and the closure of a major manufacturing plant in Michigan.

This factory is said to have supplied up to a fifth of all infant formula in the country.

But the problem is bigger than that.

The episode highlights just how highly concentrated the formula industry is – in part thanks to government policies – and the risks that can come with it.

Here’s what to know about how the United States is getting into the infant formula mess.

A few companies control an entire industry

The infant formula industry is a multi-billion dollar business dominated by a handful of companies. In the US, just four companies control about 90% of the market, including Abbott Nutrition, the company behind the closed Michigan plant.

These companies operate a relatively small number of formulation plants in order to maximize efficiency and keep their production costs low.

“They concentrate production in a few very large factories, but that creates a lot of risk,” says Claire Kelloway of the Open Markets Institute, an anti-monopoly think tank. “Much of the crisis we are currently experiencing stems from the closure of a factory.

This week, the FDA reached an agreement allowing Abbott to reopen its Michigan plant with new safety measures.

The factory not only produces much of the country’s regular infant formula, but is a key supplier of specialty formula for infants with allergies and other health conditions requiring special diets.

Other parts of the food chain have similar vulnerabilities. When giant meatpacking company JBS was hit by a ransomware attack last year, 20% of the country’s beef and pork slaughter capacity has been temporarily inactive.

FDA Commissioner Robert Califf acknowledged that concentration in the formulas industry warrants closer scrutiny.

“Whether we need more diversity in terms of the overall offering is one that I think will be discussed a lot and needs to be considered in light of the levers we have to achieve that,” Califf said. to reporters on Monday.

State contracts lead to dependence on a single supplier

The federal government doesn’t just regulate formula manufacturers. It is also their biggest customer. About half of all infant formula sold in the United States is paid for by the Department of Agriculture, through its special Supplemental Nutrition Program for Women, Infants, and Children (WIC).

Each state signs an exclusive contract with one of the formula manufacturers to provide a subsidized product to low-income families. The government gets a big discount on prices. In exchange, the formula maker gets a large captive market.

The USDA’s own research found that whichever company wins the WIC contract in a state enjoys a powerful market advantage there, with a monopoly on WIC sales and “trickle down” effects to the non-WIC market as well.

Supermarkets tend to give preferential shelf space to the formula manufacturer with the WIC contract. And pediatricians may be more likely to recommend this brand to their patients.

“Because the WIC program is such a large buyer – it buys about half of the formula on the market – once a company has an exclusive agreement to serve a state, competitors have no financial incentive to compete in this state,” Kelloway said. .

Abbott – the company behind the closed Michigan plant – has a WIC monopoly in about two-thirds of all states. The administration has asked states to temporarily relax those rules, so WIC recipients can use their benefits to buy any brand of formula.

There are also almost no imports

As a general rule, the United States buys almost no infant formula from other countries. There are high tariffs of 17.5% on most imported formulas. And regulatory barriers make it nearly impossible for formula makers outside the country to sell to customers in the United States.

“It is clear that the United States has virtually closed its market to imports,” says Mary Lovely, senior researcher at the Peterson Institute for International Economics.

Regulations governing the manufacture and labeling of formula are ostensibly designed to protect the safety of American infants. But they also serve to protect domestic formula companies from foreign competition.

“There’s really no reason why we should block perfectly nutritional formulas from high-quality sanitary factories in the European Union,” says Lovely. “There’s no reason why we shouldn’t import infant formula from Canadian factories, which could very easily be inspected by the FDA.”

To address the current shortage of preparations, the FDA has relaxed its rules to allow imported preparations — a tacit admission that foreign supplies can be sold safely, with proper precautions.

Lovely says the formula shortage illustrates the pitfalls of believing an all-domestic supply chain is necessarily safer.

“Having one or two factories in the United States or suppliers in the United States is not a way to be resilient,” she says. “In fact, it’s a recipe for being vulnerable.”

Security comes from having a variety of providers – at home and in friendly foreign countries. In other words, don’t put all your eggs in one basket or all your baby formula in one bottle.

It will take time to sort out the mess

So how soon will the formula shortage end? Not overnight.

The FDA says it will take about two weeks to restart production at Abbott’s Sturgis plant and another six to eight weeks to bring that plant to full capacity. Imported formula will also need to be looked at and is likely weeks away from appearing on store shelves, although using Army airfreight contracts may speed up delivery somewhat.

In the meantime, the administration is working with formula makers and national retailers to make sure existing supplies get to where they’re needed most.

Although specialty formulas and particular brands can be difficult to locate, overall formula sales in April were 13% higher than before Abbott’s recall, according to market research firm IRI. The increase suggests that fear of shortages could prompt some parents to buy more formula than usual.

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