(Ryan McMaken, Mises Institute) For parents who rely on baby formula—whether by choice or due to medical necessity—the nationwide baby formula shortage has become increasingly difficult to ignore. According to the Wall Street Journal, Walgreens, Target, CVS, and Kroger have all begun rationing supplies of formula.
Covid lockdowns, combined with a product recall by formula manufacturer Abbott Nutrition has created a very real shortage in a product that is key for proper nutrition in many children.
With the shortage has come the usual half-baked bromides about “evil corporations” and how baby formula companies are supposedly not regulated enough. Throw in a few references to “late-stage capitalism” and you’ll get a good taste of the usual “blame capitalism” narrative that accompanies every bout of shortages or rising prices.
In reality, federal government intervention in the formula market is rampant. Thanks to the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), formula companies are heavily subsidized by voucher programs which mean that the US government is “provid[ing] more than half of the formula that is used in the US.“
Within this voucher programs, funds are funneled to select corporations through programs that grant a formula company “the exclusive right to have its formula provided to WIC participants in the State.”
In practice, this means the largest companies with the most lobbyists are able to dominate the subsidized portion of the market. Since the subsidized portion of the market is so huge, that usually means those companies dominate the market overall. This makes it harder for newcomers to break into the market and offer any real competition. This means the marketplace becomes reliant on a small number of large firms.
The anticompetitive nature of federal WIC policy is just one aspect of how little the formula market has to do with anything we might call “the free market.”
Another major and important factor is the restriction on foreign imports enforced by federal law.
The US regime overall is very protectionist when it comes to dairy products in general, and formula is certainly no exception. As one pediatric medical journal states flatly “Infant formula in the United States is highly regulated.”
This can be seen clearly in protectionist trade law imposed on formula in the guise of protecting consumers.
As Derek Thompson at The Atlantic notes, Food and Drug Administration “regulation of formula is so stringent that most of the stuff that comes out of Europe is illegal to buy here due to technicalities like labeling requirements.”