YOUNG: cronyism worsens shortage of infant formula
Bad policy leaves people vulnerable, and the current shortage of infant formula is just the latest example. The immediate cause of the shortage was contamination at a factory in Michigan, which may not resume production until June. But the underlying cause is a host of bad policies that make the market less competitive. Tariffs, labeling and marketing regulations have so eliminated industry competition that when a recall affects a plant, it becomes an emergency for parents across the country.
These regulations give young families fewer places to turn to in times of shortage – by design. Existing companies push for these regulations because they erect a barrier to entry against potential competitors and preserve market share for themselves. Policy makers need to clean up the mess they have created as quickly as possible. Instead, they double.
Regulation is one of the main reasons why only four major formula producers control most of the US market. First, parents with WIC assistance are only allowed to choose certain brands. Second, consumers must pay a 17.5% duty on any imported formula, which excludes countless brands from the US market. It’s a good deal for companies — and for their lobbyists — but it drives up prices for families and makes it difficult to increase supplies in times of shortages.
When new formulas hit the market, regulations prohibit sellers from notifying anyone for 90 days, although manufacturers can advertise existing formulas as much as they want. These first months on the shelves are decisive for many new products, which is why existing producers love this otherwise unnecessary regulation. At times like this, parents might appreciate hearing about new options.
One of those options is toddler formula, which in many cases meets the Food and Drug Administration’s nutritional requirements for infant formula. However, FDA regulations prohibit many manufacturers from recommending this option.
Even product labels have become an anti-competitive tool. The FDA recently recalled a formula that European parents had been safely giving their babies for years because its label “did not carry a statement on the label that an iron supplement might be needed.”
US Customs recently seized nearly 600 cases of infant formula from Germany and the Netherlands due to labeling requirements. The agency’s self-congratulatory press release reads as if it had made a major drug shutdown, praising its “collective efforts and those of the FDA to help keep our citizens safe.”
Human nutritional needs do not change across political borders. If a formula is safe and nutritious for babies in Germany, the Netherlands or any other country, it will also be safe for American babies. A system of mutual recognition, in which regulators from countries with comparable standards automatically approve each other’s decisions, would go a long way to solving and preventing shortages of infant formula and a myriad of other products, at least after paying the fares.
When policies fail, the right thing to do is get rid of them. But instead, politicians might be on the verge of creating new ones.
President Biden has invoked the Defense Production Act, a wartime power law, to fly formula from overseas, but only from factories that follow the FDA’s protectionist regulations. Since, by design, most don’t, this will have little effect. At least eight senators are interested in possible antitrust action against the industry, which is concentrated in a few companies largely because of government regulations.
House Speaker Nancy Pelosi wants legislation that strengthens Washington’s role in supply chain management. The House Oversight Committee is reviewing the regulation of price gouging, which would be counterproductive. Many Republicans are invoking conspiracy theories and blaming outsiders who would likely be happy to help, regulations permitting.
Regulations explain why the formula shortage is so bad, but politicians blame the market instead. Blaming greedy markets is good for grandstanding and campaigning, but there really isn’t a free market to report when it comes to infant formula. The only sane response so far is Sen. Mike Lee’s FORMULA Act, which would allow WIC parents to choose their brand of formula, lower rates, and embrace mutual recognition with trusted allies.
When a recall or shortage occurs, parents would have far more options in a free market than in the current regulatory mess of cronyism and protectionism. The only losers would be incumbent producers, their lobbyists and politicians looking for another way to get noticed during the election campaign.