International

Baby formula: US shortage highlights industry concentration


New parents often worry their baby is not eating enough. In the US, this fear has become acute amid a nationwide infant formula shortage. Empty shelves have left families tired and exasperated.

The resulting controversy underlines the position of commercial baby milk as a touchstone for public trust — or the lack of it — in business. Nestlé’s marketing practices triggered boycotts in the 1970s. In 2008, contamination bankrupted Chinese dairy group Sanlu. This time, Abbott Laboratories of the US is in the crosshairs.

The US Food and Drug Administration ordered Abbott to close a Michigan plant in February. Several babies fell ill after consuming formula produced there. Two died. Bacterial infections were reported but may have been unrelated to strains found at the plant. Investigations continue.

Meanwhile, family tragedies have triggered a national crisis. The plant normally produces more than half of Abbott’s baby formulas in the US, including the Similac brand. More than two-fifths of all US formula is now out of stock, compared with 2-8 per cent in the first half of 2021, according to Datasembly.

The White House is stepping in. It is asking manufacturers to ramp up production and loosen rules to allow for more overseas imports. Nestlé is flying in supplies from Europe.

The mess points to the vulnerability of a supply chain dominated by too few producers. Just three companies — Abbott, Nestlé and Reckitt Benckiser — make almost 90 per cent of formula sold in the US. Abbott is the largest, with about 42 per cent of the market, according to Euromonitor.

Government policy helped create the concentration. Trade tariffs and stringent FDA requirements curb imports from foreign producers. The local oligopoly is underpinned by poorly designed state benefits. Food vouchers for low-income families misguidedly impose brand loyalty on formula buyers. One study reckons the programme paid for 57-68 per cent of all baby milk sold in the US in 2004-2006.

Abbott’s chief executive, Robert Ford, is under little obvious pressure to resign. Abbot is a diversified medical device and healthcare company. Paediatric nutrition in the US accounted for just 5 per cent of group sales in 2021. It returned more than $5bn to shareholders in dividends and share buybacks last year.

Despite an 18 per cent drop in its share price, the company boasts a $200bn market value. The jury is out on the cause of infections. But it is already plain that the US government must make the infant formula market more competitive.



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