How to Solve America’s Baby Formula Shortage

On May 22, the first batch of special needs infant formula arrived in Plainfield, Indiana; it came from Nestlé’s factories in Switzerland and the Netherlands. British firm Kendal Nutricare has also been quick to capitalize on the U.S. Food and Drug Administration’s move to ease foreign import rules, and will be airlifting tens of thousands of tins of milk formula from its inventory next month.

Typically, only 2% of infant formula is imported, mainly from Mexico, Ireland and the Netherlands, due to high import duties and strict FDA regulations on nutritional value, labelling and inspection. Kendal Nutricare also uses goat’s milk to make its formula, which would be a first in the U.S. if shipped — goat’s milk isn’t approved for babies there.

While it is difficult to predict how the federal government and industry will prevent a recurrence of formula shortages, it is very likely that a reorganization of the relevant players will occur. “As a result of this emergency, it appears that more companies will be allowed to sell. It is certainly possible that they will be allowed to sell in the future,” Ketels said, adding that foreign suppliers that already meet FDA nutritional standards (and have significant manufacturing capacity) are ideal candidate.

But smaller domestic companies also want a piece of the pie — and to some extent, they already have it. The past three months have seen a surge in demand from ByHeart and Bobbie, two young companies that sell directly to parents online. New York-based ByHeart hit the market just weeks after Abbott’s recall; the company has 15 times as many new customers this year as it expected.

Launched in 2021, Bobbie’s “European-style” formula is made with milk from Organic Valley Farms and has doubled its user base to more than 70,000 people.European formula is particularly popular with parents who value organic ingredients (which are more common in European formulas) and want to reduce added sugars such as corn syrup; parents willing to pay a premium illegal import.

However, both Bobbie and ByHeart have made difficult decisions and have stopped accepting new customers due to limited capacity. “Our only job now is to give our own customers peace of mind and make sure the supply we produce can continue to serve them,” Modi said.

But even if these young U.S. companies manage to ramp up production further, they won’t necessarily be able to grab a bigger share of the market in the long run. That’s because the “Big Three” of Abbott, Mead Johnson and Gerber are linked to a benefit program called Women, Infants and Children (WIC), which provides free formula to low-income families. About half of all babies born in the United States are eligible for it.

The scheme allows the Big Three to bid to be the sole supplier of infant formula to participating families by providing deep discount to a state. “When one company controls the WIC program, it controls the entire market in the state,” said Steven Abrams, professor of pediatrics and nutritional sciences at the University of Texas. The families selected WIC-approved infant formula from store shelves and presented their e-benefits cards at the checkout.

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