The baby formula shortage in the United States is largely over now, but aftershocks remain. And the Federal Trade Commission is investigating whether formula manufacturers teamed up illegally as they bid for state contracts to provide formula within the Women, Infants and Children program.
WIC provides infant formula to low-income women at no cost, but states award contracts to specific formula manufacturers whose products can be purchased with WIC vouchers. That’s a move designed to save the program money, but it also proves lucrative for the manufacturers that receive the contracts. Besides bolstering sales, WIC-eligible formulas also get prime placement on store shelves so they’re easy to find and those formulas may also be more readily available than other brands because stores work to keep them in stock.
Getting a WIC contract can be a big deal because FTC documents suggest more than half of infant formula sales are through the WIC program.
“Collusion” in bidding for the WIC contracts is forbidden because the rules require competitive bids. If it happened, it may even have exacerbated the formula shortage that had parents nationwide scrambling to find ways to feed infants who could not be breastfed for reasons ranging from a mother’s inability to produce adequate milk to allergies and medical conditions, among others. Specialty formulas were especially hard to find.
The Wall Street Journal broke news of the probe Wednesday. It suggested that formula makers Abbott, Nestlé and Reckitt Benckiser — all companies “frequently awarded WIC contracts” — had been asked for information. Both Nestlé and Abbott have confirmed they got such a request, while Reckitt Benckiser told The Washington Post it doesn’t comment on investigations but complies with regulatory agency requests “as a matter of principle.”
The Post said those three manufacturers and Perrigo dominate 90% of the formula market. Abbott holds contracts in 32 states and Washington, D.C., while Reckitt is the parent company to Mead Johnson, which has contracts in a dozen states. Nestlé contracts with six states, based on data taken from the U.S. Department of Agriculture.
The FTC has said the details of its probe are not being made public. Some of the back-and-forth, though, between Abbott and the commission is public.
The FTC declined in April to limit the scope of the material it asked Abbott to provide, even as Abbott negotiated with the agency. Abbott’s petition said much of the documentation being sought was irrelevant and included “materials related to non-WIC activities” and that it well predated the shortage, the information being sought dating back to 2016.
“Without modifications, these extremely broad non-WIC requests could be read to encompass virtually every document and email related to Abbott’s infant nutrition businesses for the last seven years, which would be unduly burdensome, especially given that those materials have little or no relevance to the question being investigated,” Abbott wrote.
The petition said that “Abbott is unaware of any factual basis to support the WIC-related investigation and staff have not identified any reason to believe that Abbott or any of its competitors have coordinated or colluded regarding any WIC contract.”
The company noted, however, that it was cooperating “despite the significant burden and cost to the company, in order to reassure the FTC that the company’s bids for WIC contracts are free of coordination or collusion.”
In denying Abbott’s request, the commission last month ruled the material being asked for was relevant to the investigation and said Abbott didn’t demonstrate that it was an “undue burden” or unreasonable.
No shortage of probes
It’s not the only investigation launched in the wake of the formula shortage, which began in February 2022, amid the pandemic and its supply chain woes. Other agencies, including the U.S. Department of Justice and the U.S. Securities and Exchange Commission, have said they’re looking into Abbott, which was a pivotal player in the crisis.
As the Deseret News reported exhaustively at the time, the infant formula shortage began when four infants became ill and two died. They had consumed formula made at Abbott’s Sturgis, Michigan, plant, which was the largest formula-making facility in the country. Though the illnesses were never directly tied to the plant, cronobacter sakazakii bacteria was found in the plant, which prompted inspectors to close it for a time until terms of a consent decree were met. Shortly after the plant reopened, it closed again briefly due to damage from a massive storm.
Demographer Lyman Stone, of Demographic Intelligence, told the Deseret News amid the crisis that he believed less breastfeeding, panic buying and a fluctuating number of births during COVID-19 exacerbated the crisis.
Efforts to end the shortage involved formula manufacturers here and abroad, federal government action to airlift tons of formula from other countries into the United States, a loosening of the WIC contracts so that products from manufacturers who did not hold the state contracts could also be purchased and more. At one point, President Joe Biden authorized the Defense Production Act to divert materials used to make formula to the manufacturers as needed to boost production.
Abbott issued a significant formula recall, which combined with the production halt put a big dent in the supply of formula available on store shelves and in health care facilities.
The FTC also launched a probe earlier. A year ago, the FTC issued a press release asking for “public comment on attempts to deceive families and factors that may have contributed to the ongoing shortage of infant formula.” The notice said the agency “seeks information about the nature and prevalence of any deceptive, fraudulent or otherwise unfair business practices aimed at taking advantage of families during this shortage.” Among other things, the agency was investigating possible price gouging and why the supply chains were so fragile.
The U.S. Food and Drug Administration in September issued a report noting 15 ways its own response could be improved, noting “inadequate and outdated technology, inadequate staff and training, and a ‘confluence of system vulnerabilities’ hampered the agency’s efforts,” per the Deseret News.