A Recipe for Failure: Government and the Formula Crisis

T he unfolding infant-formula-shortage fiasco is best described by three words: Made in Washington. Government-made barriers to entry into the formula market and actions that were too little or too late precipitated and prolonged the crisis.

The Food and Drug Administration, as its name implies, regulates about 78 percent of the U.S. food supply, including all food types except for meat, poultry, and some egg products. That includes infant formulas — defined by law as a food that purports to be a complete or partial substitute for human milk for children under twelve months of age.

Federal regulations (21 CDR 106) require infant-formula makers to register new products and submit data to the FDA before marketing them. The regulations (21 CFR 107.10) set out special nutritional labeling and specify that the formulas must contain certain nutrients within a specified range (21 CFR 107.100). The FDA also inspects new infant-formula-manufacturing facilities and conducts yearly inspections.

Foreign manufacturers whose formulations do not conform to FDA nutritional and labeling requirements or have not been inspected cannot import their products here, despite the fact that infants in the European Union — the world’s largest producer and exporter of formula — do not seem to be suffering malnutrition or ill effects from formula produced there. Many American parents believe European formulas are nutritionally superior because the EU bans added sugars, such as corn syrup, and because EU formulas are more likely to contain beneficial milk fats than U.S. products that substitute plant-based fats. In fact, virtually all of the European infant formula brands illegally imported here through Internet sales meet FDA nutritional, if not labeling, requirements.

An additional disincentive to importation of safe foreign products is tariffs on foreign formula — as high as 17.5 percent — making the foreign formulas uncompetitive. Tariffs on top of the cost of complying with FDA labeling, nutrition, and inspection requirements make it uneconomical for foreign producers to export to the U.S.

Unsurprisingly, 98 percent of the infant formula consumed in the U.S. is made here. Four major companies dominate the U.S. market: Abbott, Reckitt (Mead Johnson), Nestle under the Gerber label, and Perrigo, which makes generic formulations under a variety of labels.

Another government program contributes to this market concentration by discouraging market entry, competition, and formula supply. The Supplemental Nutrition Program for Women, Infants and Children (WIC) — administered by the U.S. Department of Agriculture — provides food for about half of all infants in the U.S. and accounts for roughly half the U.S. formula market. WIC is federally funded but administered by the states. Each state contracts with a single formula manufacturer, thereby locking that state’s recipients into a single brand. Many stores sell only their state’s WIC-preferred brand.

The sole-source contracting in the WIC program enables states to buy at deep discounts. But when half or more of a state’s customers are locked into a specific brand, it discourages other manufacturers from entering the market. Just two producers, Abbott and Reckitt, have nearly all the WIC contracts nationwide, thus creating a potential (and now real) vulnerability to shortages if either of them has production difficulties.

An abundance of caution is warranted with infant formula. But so is a sense of urgency. Formula provides the sole source of nutrition for infants who are not being breast-fed and is often also a supplement for those who are. Specialty formulations provide the only option for infants who due to allergies, intestinal problems, or metabolic defects cannot use standard formulas. Ensuring an adequate supply of regular formula and especially specialized formulations for which there are no alternatives is critical. Yet a sense of urgency is precisely what has seemed to be missing in the administration’s response to the current formula shortage.

Formula shortages — as measured by formula out-of-stock rates — began to climb in the summer of 2021, plateaued at a higher level in the fall, and then began a further (and rapid) climb in November 2021, doubling by late January 2022. Shortages continued to climb quickly after a February closure of Abbott’s Sturgis, Mich., plant — one of the largest formula producers in the country, particularly for specialty preparations.

The closure resulted from health and safety concerns. Between September 20, 2021, and January 5, 2022, the FDA and Centers for Disease Control and Prevention received reports of three Cronobacter sakazakii cases in infants who consumed powdered formula from the Michigan plant. Cronobacter is a bacterium commonly found in the environment. Though infections are rare, they can be deadly in the first days or weeks of life. By February 24, 2022, there was a fourth case. Two of the infected babies died.

In addition, a terminated employee whistleblower alerted FDA officials of possible food-safety violations and falsified records at the plant last October.

The FDA ultimately commenced an inspection on January 31 that lasted until March 18 and identified Cronobacter sakazakii at the facility. On February 17, the agency warned consumers not to use certain powdered infant formula products from the facility. Abbott voluntarily ceased production there and initiated a voluntary recall of suspected products.

At this time, eight months after the first reported infection and three months after the plant closed, it remains unclear if the facility was responsible for the infections. The CDC performed whole-genome sequencing but did not find that two available patient samples were closely genetically related to the multiple strains of Cronobacter found by the FDA at the Abbott factory. Furthermore, the bacteria from the patient samples were not closely related to one another.

Abbott insists “there is no evidence to link our formulas to these infant illnesses.” The company claims it tests all its products before distribution, and none of the finished-product testing by the company or the FDA was positive for Cronobacter. Moreover, unopened containers of Abbott formula at the homes of the four cases also tested negative.

It is possible that by the time the FDA inspected, different Cronobacter strains were present in the factory than were there when the suspect formula was manufactured. Yet, contamination at the factory is not the only or even the most likely explanation. Powdered infant formula could easily become contaminated at home or elsewhere after the container is opened.

Regardless of whether Abbott was at fault, there is little question that the FDA and other government agencies could and should have acted with more alacrity.

In testimony before the House Appropriations subcommittee on Agriculture, Rural Development, Food and Drug Administration and Related Agencies last week, the FDA commissioner could not answer questions from the chairwoman, Rosa DeLauro (D., Conn.) as to why the agency waited until late December to interview the whistleblower, why it waited more than four months, until January 31, to initiate another inspection after receiving the first of the illness reports, and why it has taken so long to reopen the Abbott plant.

This week, in an oversight hearing before the House Energy and Commerce Committee, the commissioner acknowledged that the agency’s response was: “Too slow, and there were decisions that were suboptimal along the way.” But neither he nor other agency officials offered much in the way of explanation other than to blame Covid-related staffing problems. They attributed the delay in addressing the whistleblower complaint — you can’t make this stuff up — to problems in the FDA’s mailroom that kept the complaint from reaching senior FDA officials for months.

The agency finally issued guidance on May 16 that it will consider exercising “enforcement discretion” on a case-by-case basis to allow importation of safe and nutritionally adequate formula that does not meet all statutory and regulatory requirements. Unfortunately, this is unlikely to elicit many applicants.

The guidance includes two pages of required information to be submitted. And the enforcement discretion will be exercised for only the next six months. Why would a foreign producer go to the trouble of assembling and submitting all the required information if its ability to import will last only half a year?

Other administration responses have likewise been belated and seem more like public-relations stunts than effective policies. Last week, President Biden invoked the Defense Production Act to secure ingredients for formula manufacture. But a shortage of formula ingredients has never been the problem.

Similarly, the president’s announcement that he would order military planes to transport formula from overseas to the U.S. highlights the unnecessary barriers to importing formula. The White House press secretary announced that these specialty formulas produced in FDA-approved European facilities would be transported within three days rather than the usual two weeks. But a shortage of transportation has never been the problem. Following its Michigan plant closure, Abbott started air-shipping powder formula from its FDA-registered plant in Cootehill, Ireland, into the U.S. without military aid. The problem is the red tape that turns what should be a simple, speedy transport into a two-week process and the labeling requirements and tariff barriers that discouraged private suppliers from importing the formula on their own.

The formula crisis illustrates, yet again, the importance of examining the costs and benefits of government policies. Regulations that limit market entry decrease the supply of important goods, resulting in shortages and higher prices. Ensuring the safety of formula does not require such restrictive policies.

FDA regulations limiting the supply of competing foreign formulas should be permanently eased. Tariffs on foreign formula should be ended. And the WIC program should be permanently reformed so that states and their citizens can more easily access multiple types of formula. It is only by removing counterproductive regulations that the free markets that drive innovation, competition, and lower prices can flourish.