Formula for Disaster
There is no global shortage of baby formula. Instead, there is a national shortage in the United States. Why do we have a shortage when others don’t? It is primarily due to the policies of our government. Overbearing regulations prevented a simple market realignment of inventory when one large formula producer underwent a product recall and had to temporarily shut down their production lines.
Product recalls are not uncommon. We’ve had recalls on lettuce, peanut butter, dog food, all sorts of products. So why don’t we wind up with shelves bare of Romaine, Crunchy Style, or Tender Chunks? The answer is simple: government regulation.
Baby formula suffers from a host of policy decisions and regulations that affect production, availability, and distribution. Europe exports plenty of high-quality baby formula, but little of it ever reaches American shelves. (Europe is the largest producer of baby formula, much of it made to higher quality standards than we have). Canada and Mexico have formula that meets every U.S. quality standard, but we cannot buy most of it.
Part of the reason is old-fashioned protectionism. There are incredibly high (17.5%) import tariffs on baby formula, essentially a prohibitively high tax. When baby formula is imported, this added cost is passed on to the American customers. Producing countries don’t pay tariffs, only the buyers are charged. The result? Despite 20% of our food supply being imported, a whopping 98% of the baby formula sold in the US is produced domestically.
Another part of the reason; the infamous FDA product label regulations. Plenty of baby formula is available that meets every FDA quality and safety standard. However, if the package label differs from FDA standards, the formula is illegal to sell in the US and is subject to seizure and criminal penalties. You would imagine that formula that meets safety standards would have label requirements waived to avert the shortage. You would be wrong, so far.
Families who are suffering the most from this manufactured shortage are those who rely on subsidies from the government’s WIC program. WIC is America’s largest purchaser of infant baby formula, according to the Wall Street Journal. In fact, WIC buys half of all formula sold in the U.S. – over $1 billion in sales a year. The way WIC works is the federal government supplies funds to the states to provide products like baby formula to families that need food assistance. Regulations require each state to contract with a single formula producer and do not permit them to change to alternate sources if the formula is unavailable. The federal government has attempted to issue waivers to states to allow them to switch to an alternate formula producer, but states have been slow to understand the ever-changing rules for a product that largely does not exist. You would think that the feds would simply get rid of the single formula producer rule, but instead, these waivers will expire in August, once again exasperating the problem.
The USDA claims that it is working “round the clock” to solve a problem that they have largely caused.
Lawmakers have reacted to this crisis in the only way they know how; by proposing millions of dollars to be thrown at the problem (House Bill HR 7790). Does this bill remove the punishing tariffs, free WIC to buy imported infant formula, or relax the overbearing product labeling requirements? It does not. What is does is expand the government’s role in problem generation by hiring more people and granting them more power. “The emergency funding could be used to extend the variety of FDA inspection employees, present assets for personnel engaged on formulation points, assist the company cease fraudulent child formulation from coming into the US market”, according to the Home Appropriations Committee.
In the meantime, infant formula remains in very short supply in the US, with inventories being restricted, and costs often soaring (on a product that is already expensive). Once again, lawmakers and agencies that created a problem with bureaucracy proposes to fix the problem with…more bureaucracy, and more spending.
The FDA should focus on product safety, and states should be allowed to use their WIC funds without ridiculously restrictive federal regulations. The states could act more nimbly to address local needs, and there could be wider availability of products. By removing the huge tax tariffs on infant formula, our (nearly closed-to-import) markets would have supplies of higher quality formula. In turn, helping to reduce the cost of baby formula through competitive pricing. Lower costs would help American families, particularly the ones experiencing Food Risk in the lower income brackets.
Once again, the solution for government is simple: ‘get out of the way’. Even a baby could understand this.