The Baby Formula Shortage Was Made in Washington

A box of Similac infant formula


Photo:

BING GUAN / REUTERS

Politicians are trying to appease mothers angry about formula shortages, but one thing they won’t do is look in the mirror. Overcoming the shortfall requires fixing the government policies that helped create it.

Shortages began to happen after Abbott Laboratories closed a factory in Michigan after four infants who drank formula produced at the facility became seriously ill. Abbott controls about 42% of the US market, and the other three major manufacturers (Perrigo, Nestle and Mead Johnson) have not been able to ramp up production fast enough to compensate. Empty shelf.

Enter President Biden, who on Wednesday invoked the Defense Production Act. Cold War-era laws allow the federal government to force private businesses to manufacture defense goods and reorder supply chains, putting some customers ahead of others. Radicals argue that government is the solution to all problems, which is why legislation has become their household remedy for any product shortage.

Mr. Biden said the legislation would allow his Administration to prioritize raw materials for infant formula. He also plans to send government planes to fly supplies from abroad. But there doesn’t seem to be a shortage of recipe ingredients. It’s also no problem shipping it. The main barrier to increasing supply is regulation.

Trade protectionism — including tariffs of up to 17.5% — and the Food and Drug Administration’s labeling and ingredient requirements restrict competition. About 98% of US infant formula is produced domestically, although it is no safer than European or Australian products. Although the FDA has the authority to inspect foreign factories, the tariffs make imports less competitive.

Solution: Pause tariffs and ease ingredient and label requirements for trusted partners. For now, the FDA says it will exercise full enforcement authority over product labeling and provide a streamlined import review process for products from foreign facilities with a positive test record. . But these trade barriers should not have existed in the first place.

House Democrats passed a bill Wednesday that would give the FDA another $28 million to inspect foreign factories. OK, but the FDA’s problem isn’t so little money. That’s too much regulation.

A more useful House bill would allow the Agriculture Secretary to waive regulations for the Women, Infants and Children (WIC) program amid formula shortages. These rules restrict new mothers from purchasing formula from the sole sourcing contractor in the states, which administers WIC.

State monopoly contracts effectively give formula suppliers a monopoly. WIC accounts for about half of the US formula market, and Abbott and Mead Johnson have a program contract that covers 87% of infants. Many supermarkets only stock the shelves of state-owned monopolies, and hospital doctors often recommend them. Where are Lina Khan’s Federal Trade Commission trust bankruptcies when you really need them?

While the House legislation would be of great help, broader reform is needed. But Democrats say they don’t have time for a bigger fix — it’s a lot easier to round up the usual suspects. They have begun investigating Abbott and other manufacturers. “I think an indictment may be necessary,” Nancy Pelosi said this week. She means corporate executives, not members of Congress, alas.

Meanwhile, Oregon Senator Ron Wyden is blaming the shortfall – you can’t make up for this – of 2017 GOP tax reform. What does one have to do with the other? The reform gives producers more capital to increase supply.

The formula shortage will ease as the Abbott factory resumes operations and imports increase. But the lesson for America’s political class is that the government’s anti-competitive policies create loopholes in the supply chain that end up suffering consumers.

Magazine Editorial Report: Paul Gigot interviews former Trump economic adviser Kevin Hassett. Image: Getty Images / Bloomberg News / Reuters Synthesis: Mark Kelly

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Appears on 20 May 2022, print edition as ‘Government Infant Formula Shortage.’

https://www.wsj.com/articles/governments-baby-formula-shortage-abbott-mead-johnson-tariffs-wic-fda-perrigo-democrats-11652996346 The Baby Formula Shortage Was Made in Washington

Alley Einstein

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