The US Baby Formula Shortage
Progressive Protectionism is the Culprit
There’s an infant formula shortage in the U.S. Almost half of the nation’s supply is out of stock. New mothers are in panic wondering what the hell is going on. Why is this phenomenon happening in the US?
In February, the Abbott Nutrition facility was shut down when the FDA recalled three brands of formula due to potential bacterial infections. The facility is still apparently down awaiting FDA approval to restart production.
Abbott Nutrition is one of only a handful of companies that produce the majority of American infant formula. So naturally, when they went down, this crisis ensued.
But, why are there only a handful of companies available to provide infant formula to Americans? That should be your first question.
The Food and Drug Administration (FDA) has apparently come up with a plan to increase imports of infant formula from abroad.1 Apparently, 98% of infant formula consumed in the U.S. is produced domestically. The FDA has strict requirements about vitamin content, packaging, and labeling that raise barriers to imports. Not to mention the U.S. government imposes 17.5% tariffs on imported formula.
Why is it that I can order stuff like shoes, deodorant, toys, you name it, from all around the world and have it show up on my doorstep, but I can’t do the same for infant formula when the outside world has ample supply available?
Protectionism Has Consequences
Protectionism is the practice of shielding a country's domestic industries from competition by means of tariffs, trade restrictions, price controls, subsidies, etc., all a hallmark of American progressive policy desires. Unfortunately, protectionism is a form of progressivism that has captured many conservatives. It was a major part of President Donald Trump’s agenda.
Protectionism is anti-market. A protectionist might say something like, “You cannot leave the world subject to an unhampered evil, cruel, and unjust market. There must be a Big Daddy and Mommy government to protect the children from the fierce competition, you see.”
Well, the children are in need of infant formula right now. And I see protectionism as a major cause of the crisis.
There are no doubt laws beyond comprehension that dictate trade policies of the United States. Businesses need lawyers to navigate such a complex regulatory world. But as just one example of how trade restrictions create an environment in which many new mothers find themselves today, look no further than the new United States–Mexico–Canada Agreement (USMCA). This came into effect in September of 2018. From the USMCA Fact Sheet2 of the Office of the US Trade Representative, the purported objective of this agreement is to:
“… advance United States agricultural interests in the most important markets for American’s farmers, ranchers, and agribusinesses. This high-standard agreement opens new markets to expand United States food and agricultural exports and support food manufacturing and rural jobs.”
It’s protectionism plain and simple. Most protectionist-advocates favor these types of trade agreements to “protect American jobs.” To protectionists, the global market is too harsh for American corporations, apparently. But in reality, protectionist policies help prop-up and consolidate a small number of dominating business firms around which the polices or agreements revolve. Protectionists don’t see the effect their policies have on the people.
Case in point … I did a quick word search for “infant formula” in this USMCA Fact Sheet and came across this key piece of information regarding Canada’s Milk Class Pricing System:
“For infant formula, the export cap will be 13,333 MT in the first year, increasing to 40,000 MT in the second year. Exports that exceed this threshold will face a surcharge of C$4.25 per kilogram. Both caps will be increased by 1.2 percent a year, an amount equivalent to Canada’s historical population growth.”
This agreement caps Canadian export of infant formula to favor American formula corporations. An addendum to the USMCA3 also sets price caps on Canadian formula imports so as not to harm the American corporations:
“A substitute pricing formula for skim milk solids used to produce nonfat dry milk (nfdm), milk protein concentrate, and infant formula will set prices no lower than a level based on the U.S. price for nfdm.”
Not to mention the Biden administration is currently encouraging states to crackdown on “price gouging.” Price controls will cause further shortages, people.
So, here we are in an environment where American infant formula corporations can’t keep up with demand, but we shutoff the people from potential Canadian imports and prevent market competition from satisfying that demand. Brilliant!
Ryan McMaken of the Mises Institute put out a great piece yesterday4 also pinning much of the blame of this environment on protectionism … much better than I have. He points out the key fact that through the WIC program, the US government is subsidizing more than half of the formula used in the US.
“… funds are funneled to select corporations through programs that grant a formula company ‘the exclusive right to have its formula provided to WIC participants in the State.’ In practice, this means the largest companies with the most lobbyists are able to dominate the subsidized portion of the market. Since the subsidized portion of the market is so huge, that usually means those companies dominate the market overall. This makes it harder for newcomers to break into the market and offer any real competition. This means the marketplace becomes reliant on a small number of large firms.”
Subsidies like this inflate the prices of infant formula and help solidify the market hold of these “select corporations.” Why would a corporation seek to compete in the market to provide affordable formula when the gravy train flows without effort? And how can a newcomer compete in such an environment? People wonder why there are only a handful of infant formula companies in the US.
This all reminds me of the time Senator Bernie Sanders, Mr. Progressive I might add, expressed his disgust with the fact that Americans can choose among an assortment of available deodorants at the grocery store:5
“You don’t necessarily need a choice of 23 underarm spray deodorants when children are hungry in this country.”
But, you see Bernie, when one of those deodorant companies goes down, you still have 22 others to choose from. That’s the beauty of the market. Children won’t go stinking, you see.
Now apply that logic to infant formula. Don’t we all wish right about now that we had more options available for infant formula? Children are literally going hungry, Senator Bernie, because of the lack of available market options.
The government’s protection of market monopoly is more important than babies’ hunger, you see. Price controls and import restrictions do not help the American people. No, no. On the contrary, they distort the market and help monopolize the same corporations the progressives claim to hate.