America is running out of baby food because 3 companies control the market and babies aren’t that profitable

A baby food shortage that has gripped the US since March is causing parents to panic about where and when to find the products they need to feed their children.

According to Datasembly, a provider of real-time product data for retailers and consumer packaging, the out-of-stock rate, which represents the amount of formula out-of-stock compared to what’s typically available, was 43% for the week ending May 8. goods (CPG) brands.

With no easy end in sight, healthcare providers across the country have been forced to spend their spare time driving between stores in search of formula, forcing retailers to limit the number of cans customers can purchase. Others have turned to Facebook groups and informal support networks to buy the nutritional products that work best for their children.

“I looked online. I have my mother in Boston looking, my mother-in-law in Florida,” Elyssa Schmier previously told me. Fortune about her trouble finding formulas for her 8-month-old son. “Everyone we know is looking for us and no one can find it.”

How did a baby food crisis start in one of the world’s richest countries? Experts say a recall by one of the industry’s largest manufacturers, ongoing supply chain problems and a market dominated by only a few players have combined to create what one consumer goods expert calls a “perfect storm.” affecting the supply of essential formula to millions of babies in the US And the shortage could last for months.

Here’s how we got here.

Poisoned Baby Food

Abbott Nutrition is the nutrition division of Abbott Laboratories, the medical and healthcare giant that makes products ranging from carbohydrate-rich drinks to help patients recover from surgery, to energy drinks, to powder and liquid baby food. Although it has a worldwide manufacturing network, its factory in Sturgis, Michigan is one of the few in the US that produces formula.

On February 17, Abbott voluntarily recalled its Sturgis-made products and closed the factory after reports that four babies became ill from a bacterial infection and two died after consuming the factory-produced formula. A whistleblower report, filed with the FDA in October 2021, alleged further health and safety compliance issues at the facility and contributed to a formal inspection by the agency earlier this year.

Abbott is now awaiting approval to reopen. “We understand the situation is urgent – getting Sturgis up and running will help reduce this shortage,” the company said in a statement to Fortune† After conducting its own research, including genomic sequencing of bacteria, the company reported that nothing on its property matched the specific strain of bacteria that caused the illnesses and deaths.

“The Cronobacter sakazakii found during environmental testing during the study was located in non-product contact areas of the facility and has not been associated with any known teething problems,” the company said in a statement.

However, the FDA found more problems with the facility beyond the possibility of previous contamination. After its own inspection, which took place from January 31 to March 18, the FDA says it has observed: Cronobacter sakazakii “in medium and high care areas of powdered infant formula production” – a problem whether or not it was the same species that caused the specific infant mortality.

In addition, the agency said in its report that the company “failed to maintain all surfaces that came into contact with infant formula to protect the infant formula from contamination from any source.” According to the FDA, the company is still working on “corrective findings” from its inspection. As a result, the factory has not yet been able to reopen.

Abbott will not be able to get products from its Sturgis facility on the shelves for another six to eight weeks, according to the company. And that only if it opens again as soon as possible.

“From a parent’s perspective, there’s no easy, magical answer right now,” said Brian Ronholm, director of food policy for consumer reports, a non-profit organization committed to ensuring product integrity.

Even after the factory reopens and starts providing formula to families again, a bigger question remains: how could closing a single production facility have such a drastic effect on millions of babies’ access to food?

A monopoly on the market

The baby food market exists as a shared monopoly, with only a few manufacturers controlling almost the entire offering.

Abbott had a market share of about 43% a decade ago, according to a 2011 USDA report — the most recent number available. Little has changed since then. The company still has exclusive supplier contracts in many states with WIC, the USDA’s supplemental nutrition program for low-income families, which accounts for nearly half of formula sales nationwide. A few other manufacturers, including Mead-Johnson and Nestlé, also have WIC contracts and dominate the rest of the market.

Besides the highly concentrated structure, the baby food market is tough for another reason. Demand is determined by the country’s birth rate and the market has been shrinking for years. According to the US Census Bureau, the birth rate has fallen every year since 2008 except for 2014.

With only a few key players whose capabilities are tied to a shrinking market, when something stands in the way of a particular product from hitting store shelves, repercussions are inevitable. Other manufacturers will no doubt struggle with an influx of new demand from consumers who can’t get what they would normally buy.

“The dilemma [manufacturers] is that it is not a very lucrative market,” said Patrick Penfield, professor of supply chain management at Syracuse University. “The only way you can increase your market share is if you aggressively go after competition.”

Since Abbott is already one of the biggest players in the game, expanding his stake significantly isn’t really an option.

“If you can’t increase your market share, you’re looking at lowering costs,” says Penfield. “And sometimes when you cut costs, you may not have the right protocols or procedures to make sure you’re doing things right.”

“I’m not saying Abbott Laboratories did that,” he warns. “But that would be an assumption on my part.”

Is the FDA Responsible for the Shortage?

Abbott is not the only entity that may have made a mistake. “There’s plenty of debt here,” said Scott Faber, a professor at Georgetown University’s Legal Center and vice president of government affairs at Environmental Working Group, a nonprofit focused on consumer empowerment.

Faber sees the FDA itself as partly responsible for the shortage. The agency, he says, did not respond quickly enough to the whistleblower’s report and should have conducted a factory inspection earlier.

“If a drunk driver causes a car accident, the drunk driver bears a lot of the blame, but so does the bartender who looked the other way while serving too many drinks,” he says.

Submitting the report last month for good measure, Representative Rosa DeLauro (D-Conn.) wrote, “I am equally concerned that the FDA has been far too slow in responding to this report. The report was submitted to the FDA on October 20, 2021. The FDA did not interview the whistleblower until late December 2021. According to news reports, the FDA did not personally inspect the plant until January 31, 2022, and the recall was not issued until February 17, 2022.”

The agency did not complete its inspection until March 18 and passed comments to Abbott. The company says it has since worked to update its education and training protocols, as well as its cleaning and maintenance procedures. “The FDA wouldn’t have closed that factory if they hadn’t found anything. So there is definitely some form of non-compliance,” says Penfield.

Now the FDA is working to catch up on a crisis that has seemed to be unfolding in slow motion for months.

“The FDA recognizes that many consumers do not have access to infant formula and essential medical foods that they are accustomed to using and are frustrated by their inability to do so,” the agency said in a statement. Fortune† “The agency is committed to ensuring that there is enough product available where and when they need it.”

The future of formula

This week, the White House held a news conference to address the shortage and how it plans to replenish the formula as quickly as possible without compromising safety.

“Those steps first include reducing the red tape to get more infant formulas on shelves by urging states to provide flexibility in the WIC program, which could be a major cause of some supply disruptions,” said one senior government official. The official added that the administration is calling on the FTC and the state’s attorneys general to monitor price increments by outside sellers.

The official outlined a third way to reduce the deficit: foreign imports. “The US normally produces 98% percent of the infant formula it consumes, and trading partners in Mexico, Chile, Ireland and the Netherlands are the main import sources,” the government said in a press release accompanying the press conference.

However, there is no timeline yet for when those formula imports will arrive in the US and be distributed. Friday, FDA Commissioner Robert Califf tweeted that the agency will announce its plan next week.

When asked how long the shortage will last, the official said there is no estimate when Abbott’s facility will resume operation.

“I see continued shortages,” Penfield says of the coming weeks. “I think there’s a lot of pressure on Abbott to start that factory. And until they do, you will see these lingering shortages.”

Fortune would like to hear about your experiences navigating the baby food shortage. You can email the reporter of this article at [email protected]

This story was originally on Fortune.com

Leave a Comment