America is running out of formula because 3 companies control the market and babies aren’t so profitable

A formula shortage that has plagued the United States since March has parents panicking about where and when they will be able to find the products they need to feed their children.

The out-of-stock rate, representing the amount of formula that is not in stock compared to what is generally available, was 43% for the week ending May 8, according to Datasembly, a data provider on real-time products for retailers and consumer packaged goods (CPG) brands.

With no easy end in sight, caregivers across the country have been forced to spend their free time driving between stores in search of infant formula, prompting retailers to limit the number of cans customers can buy. Others have turned to Facebook groups and informal support networks to acquire the nutritional products that are best for their children.

“I looked online, I have my mom in Boston looking, my stepmom in Florida looking,” Elyssa Schmier previously said. Fortune about her difficulty finding formula for her 8-month-old son. “Everyone we know is looking for us and no one can find them.”

How did a baby formula crisis erupt in one of the world’s wealthiest countries? Experts say a recall by one of the industry’s biggest manufacturers, ongoing supply chain issues and a market dominated by just a few players have combined to form what a consumer goods expert calls it a “perfect storm” affecting the supply of essential formula to millions. babies across the United States And the shortage could last for months.

Here’s how we got here.

Poison baby formula

Abbott Nutrition is the food business arm of medical device and healthcare giant Abbott Laboratories, which manufactures products ranging from carbohydrate-rich drinks that help patients recover from surgery, to energy drinks, to powdered formulas and baby fluids. Although it maintains a global manufacturing network, its plant in Sturgis, Michigan, is one of the few in the United States that produces infant formula.

On February 17, Abbott voluntarily recalled its products made by Sturgis and closed the plant following reports that four infants fell ill with a bacterial infection and two died after consuming infant formula produced in the facility. plant. A whistleblower report, submitted to the FDA in October 2021, alleged further health and safety compliance issues at the facility and contributed to a formal inspection by the agency earlier this year.

Abbott is now awaiting approval to reopen. “We understand the situation is urgent – ​​bringing Sturgis into service will help alleviate this shortage,” the company said in a statement to Fortune. After conducting its own investigation, which included genomic sequencing of the bacteria, the company reported that nothing on its premises matched the specific strain of bacteria that caused the illnesses and deaths.

“The Cronobacter sakazakii which was found in environmental testing during the investigation was in non-product contact areas of the facility and has not been linked to any known childhood illnesses,” the company said in a statement.

The FDA, however, found more problems with the facility that extended beyond the possibility of prior contamination. Following its own inspection, which took place from January 31 to March 18, the FDA says it observed Cronobacter sakazakii “in medium and high care areas of powdered infant formula production” – an issue whether or not it was the same strain that caused the specific infant deaths.

The agency further stated in its report that the company “has not ensured that all surfaces that come into contact with infant formula are maintained to protect the infant formula from contamination from any source.” According to the FDA, the company is still working to “correct the findings” of its inspection. The factory has therefore not yet been able to reopen.

Abbott won’t be able to put products from its Sturgis plant on the shelves for six to eight weeks, according to the company. And that’s only if it reopens as soon as possible.

“From a parent’s perspective, there’s no magic, easy answer right now,” says Brian Ronholm, director of food policy for consumer reports, a non-profit organization dedicated to ensuring product integrity.

Even after the factory reopens and it begins to provide infant formula to families again, a larger question remains: how can the closure of a single manufacturing plant have such a drastic effect on the access of million babies to nutrition?

A monopoly in the market

The infant formula market exists as a shared monopoly, with only a few manufacturers controlling nearly all of the supply.

Abbott had a market share of around 43% a decade ago, according to a 2011 USDA report – the most recent figure available. Little has changed since then. The company still maintains exclusive supplier contracts in many states with WIC, the USDA’s Supplemental Nutrition Program for Low-Income Families, which accounts for nearly half of formula sales nationwide. A few other manufacturers, including Mead-Johnson and Nestlé, also have WIC contracts and control the rest of the market.

Apart from its highly concentrated structure, the infant formula market is challenging for another reason. Its demand is determined by the country’s birth rate and the market has been shrinking for years. The number of births has declined every year since 2008 except 2014, according to the US Census Bureau.

With only a few key players whose capabilities are tied to a shrinking market, repercussions are inevitable when something gets in the way of a certain product reaching store shelves. Other manufacturers are bound to struggle with an influx of new demands from consumers who cannot get what they usually buy.

“The dilemma [manufacturers] have is that it’s not a very lucrative market,” says Patrick Penfield, professor of supply chain management at Syracuse University. “The only way to increase your market share is to aggressively seek out the competition.”

Because Abbott is already one of the biggest players in the game, dramatically increasing his share isn’t really an option.

“If you can’t increase your market share, then you look at how you can cut costs,” says Penfield. “And sometimes when you’re cutting costs, you may not have the right protocols or procedures in place to make sure you’re doing things right.”

“I’m not saying that’s what Abbott Laboratories did,” he warns. “But that would be an assumption on my part.”

Is the FDA responsible for the shortage?

Abbott is not the only entity possibly at fault. “There’s a lot of blame to blame here,” says Scott Faber, a professor at Georgetown University’s Law Center and vice president of government affairs at Environmental Working Group, a nonprofit aimed at empowering consumers. .

Faber considers the FDA itself to be partly responsible for the shortage. The agency, he says, did not react quickly enough to the whistleblower’s report and should have carried out an inspection of the factory sooner.

“When a drunk driver causes a car accident, the drunk driver bears a lot of the blame, but the bartender who looked the other way by pouring one drink too many,” he says.

When submitting the memorandum report last month, Rep. Rosa DeLauro (D-Conn.) wrote, “I am also concerned that the FDA has responded far too slowly to this report. The report was submitted to the FDA on October 20, 2021. The FDA did not interview the whistleblower until late December 2021. According to reports, the FDA did not inspect the plant in person until January 31, 2022, and the reminder was unissued before February 17, 2022.”

The agency did not complete its inspection and issue observations to Abbott until March 18. The company says it has since been working to update its education and training protocols as well as its cleaning and maintenance procedures. “The FDA wouldn’t have closed this plant if they hadn’t found anything. So there’s definitely some type of non-compliance that’s happening,” Penfield says.

Now the FDA is scrambling to catch up on a crisis that has seemed to be unfolding in slow motion for months.

“The FDA recognizes that many consumers have been unable to access the essential infant formula and medical foods they are accustomed to using and are frustrated by their inability to do so,” the agency said in a statement. Fortune. “The agency is doing everything in its power to ensure that there is an adequate product available where and when they need it.”

The future of the formula

This week, the White House held a press conference to address the shortage and how it plans to restock formula as quickly as possible without compromising safety.

“These measures include first cutting red tape to put more infant formula on the shelves by urging states to provide flexibility in the WIC program, which may be a key factor in some supply disruptions” , said a senior administration official. The official added that the administration is calling on the FTC and state attorneys general to monitor price gouging from third-party sellers.

The official described a third way to alleviate the shortage: foreign imports. “The United States normally produces 98% of the infant formula it consumes, and trading partners in Mexico, Chile, Ireland and the Netherlands are the primary sources of imports,” the administration said in a press release accompanying the press conference.

However, there is no timeline yet for when these formula imports will arrive in the United States and be distributed. On Friday, FDA Commissioner Robert Califf tweeted that the agency will announce its plan next week.

When asked how long the shortage would last, the official said there was no estimate of when Abbott’s facility would resume operations.

“I see continued shortages,” Penfield says of the coming weeks. “I think there’s a lot of pressure on Abbott to get this plant up and running. And until they do, you’re going to see these continuing shortages.

Fortune would like to hear about your experiences with the baby formula shortage. You can email the reporter for this article at colin.lodewick@fortune.com.

This story was originally featured on Fortune.com

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