The way state agencies purchase infant formula for low-income households, under the Women, Infants and Children program, may be creating a less resilient supply chain, said the Federal Trade Commission in a report on factors in the 2022 shortage of formula.
The agency also suggested that consolidation among formula makers, and FDA regulation of the industry, may have played a role in the shortage. “Concentrated production can also concentrate risk” of disruption in supplies, the report said.
There are four large formula manufacturers at present and in recent years, only three companies bid on single-source contracts with states. More than half of “routine” infant formula sold in the country is purchased by WIC recipients. In 2018, states received $1.72 billion in rebates on $2.23 billion in formula purchases by WIC participants, a 77 percent discount on the retail price.
“While cost-effective, the current single-supplier WIC contract mechanism may make the U.S. infant formula market more fragile,” said the FTC report. The company that holds the WIC contract in each state ends up with an average market share of 84 percent, thanks to spillover effects into the non-WIC market.
“Policymakers may want to consider that state single-supplier WIC contracts are contributing to high levels of concentration at the state level, which can leave states extremely vulnerable to supply disruptions,” said the agency. “The possibility that WIC increases retail prices for non-WIC infant formula purchases is worthy of attention from policymakers.”
In a statement, FTC chair Lina Khan and commissioners Rebecca Slaughter and Alvaro Bedoya said they unequivocally supported WIC’s mission and pointed to two concerns: “The heightened dangers of market consolidation in critical sectors” and “building resilient markets should be an important factor as we design government programs.”
“Single-supplier contracts also risk foreclosing competition among infant formula manufacturers or erectiing barrier to new suppliers who want to enter the infant formula market. As a result, the single-supplier WIC contract mechanism can make it more likely that a lone contaminant outbreak or incident will have outsized effects that lead to serious formula supply disruptions.”
Widespread disruptions in the formula supply followed the voluntary withdrawal in February 2022 by Abbott Nutrition, the second-largest formula maker, of several powdered infant formulas made at its plant in Sturgis, Michigan. Nationwide shortages were reported throughout the year. In 2023, Congress directed the FDA to create an Office of Critical Foods, which includes infant formula.
The FTC report, “Market factors relevant to infant formula supply disruptions,” was available here.