The Explainer

At Rice University’s Baker Institute, Alexandra E. Bello studies the impact of economic policy on health outcomes, particularly related to emerging technologies and the food industry. We asked her to explain what factors led to the baby formula shortage — and what policy changes may help alleviate such shortages in the future.

What event triggered the formula shortage?
Abbott Laboratories closed in February 2022 after the FDA received nine reports of babies who died after having been fed Abbott’s powdered formula. The CDC wasn’t able to confirm links in any of the cases, but they had all been fed formula from Abbott Laboratories, so they went ahead and issued a voluntary recall. This exposed the fragile market, causing the shortage. 

When California switched its contract from Abbott to Johnson, Abbott’s market share dropped from 90% to 5% across all its consumers. It has a big influence on everybody and not just those in the WIC program.

Why would a voluntary recall of formula at Abbott Labs cause such a ripple effect, causing families to struggle to find enough formula?
About 90% of formula sales in the U.S. are controlled by four companies. Abbott is one of them, along with Nestlé, Mead Johnson and Perrigo. The reason behind that is in part due to the USDA WIC program, which is responsible for about half of the formula sales in the U.S. With the WIC program, each individual state is required to award a formula contract to the lowest bidder. [The company with] the WIC contract in a state dominates the market.

Why is that so problematic in terms of when these shortages might happen?
It creates a really difficult barrier for other companies to come in. There was a startup that was approved in March 2022, when all this was going on, and it was the first new formula manufacturer in 15 years. It’s not worth it for companies to try to compete when 90% of the market is going to four companies already. It’s also difficult for companies outside of the U.S. to compete. The U.S.-Mexico-Canada agreement of 2020 restricts formula from Canada as an effort to protect U.S. dairy farmers.

What are some potential public policy solutions that can help guard against this happening again?
Not being able to import from Canada and having a really high (17.5%) tax on formula from Europe is a problem. We know the formula is safe, we are importing it now, but for some reason, by the end of the year, it’s going to be a lot harder to get. We’re kind of going back to where we were at the beginning of the year, and just hoping none of our manufacturers have problems again, which is pretty unrealistic.

What are some of the changes that you’re hoping to see?
I think one of the most important changes is being able to import from international suppliers, because we’ve relied on them for the last few months for most of the formula supply. We need that available all of the time, not just when it gets so bad that the federal government has to get involved. Another change would be evaluating the WIC program and seeing what needs to change, in terms of making it more flexible, so that there is more competition.

— Interview by Rachel Fairbank

Alexandra E. Bello is a research manager with the Baker Institute’s McNair Center for Entrepreneurship and Economic Growth. She has a master of public health from Texas A&M’s Health Science Center.­