From Supply Chain Pain To Hunger Pangs
Infant Formula Shortage The Latest Example Of How Government Mucks Things Up
The richest nation on Earth cannot feed its youngest and most vulnerable.
That is the practical upshot of the worsening shortage of infant formula in the United States. A perfect storm of dislocations is breaking the supply chain that feeds at least millions of newborns and infants in the United States every day.
The shortage became acute with a recall of a defective brand this year after at least four babies were hospitalized with bacterial infection and at least two babies died. But the recall has been exacerbated by relentless supply-chain woes and labor shortages. The Datasembly research found that the national out-of-stock rate for baby formula reached 43 percent for the week ending Sunday, up 10 percent from last month’s average.
As a result, the baby formula shortage becomes a grim example of how government meddling in matters economic never ends well.
Not Every Mother Breastfeeds
Breastfeeding newborns is highly recommended by the WHO, Unicef, and the American Academy of Pediatrics.
In the United States, the American Academy of Pediatrics (AAP) currently recommends:
Infants should be fed breast milk exclusively for the first 6 months after birth. Exclusive breastfeeding means that the infant does not receive any additional foods (except vitamin D) or fluids unless medically recommended.
After the first 6 months and until the infant is 1 year old, the AAP recommends that the mother continue breastfeeding while gradually introducing solid foods into the infant's diet.
After 1 year, breastfeeding can be continued if mutually desired by the mother and her infant.
The World Health Organization currently promotes as a global public health recommendation that:
Infants be exclusively breastfed for the first 6 months after birth to achieve optimal growth, development, and health.
After the first 6 months, to meet their evolving nutritional requirements, infants should receive nutritionally adequate and safe complementary foods while breastfeeding continues for up to 2 years of age or beyond.
The consensus among pediatricians is that the mother’s breast milk is the best nutritional source for a newborn as well as for other bioactive compounds (antibodies and other augments to the child’s immune system, for example) that are important to the child’s survival and healthy development.
Human milk is uniquely suited to the human infant, both in its nutritional composition and in the non-nutritive bioactive factors that promote survival and healthy development.
Despite these healthcare recommendations in favor of breastfeeding, a significant proportion of American newborns are either not breastfed at all or are not exclusively breastfed even from the initial days following birth.
The reasons for not breastfeeding vary from mother to mother, and range from medical issues affecting either mother or child or both mother and child, to psychological and social factors that impede breastfeeding. The relevant point, however, is that, regardless of reason, a large number of newborns will be fed infant formula at some point during their first year, and some may be fed infant formula almost exclusively.
When infant formula is not available, those infants go without food. Newborns are generally not able to begin eating and digesting solid foods until around 4 to 6 months of age, and a number of foods can actually be harmful until after 12 months of age.
But by ages 4 months to 6 months, most babies are ready to begin eating solid foods as a complement to breast-feeding or formula-feeding. During this time babies typically stop using their tongues to push food out of their mouths and begin to develop the coordination to move solid food from the front of the mouth to the back for swallowing.
Keep in mind that these are the general observations, recommendations, and guidelines developed by pediatricians—which is to say they do not include situations where infants and newborns develop nutritional disorders or food allergies which require they be fed particular formula for an extended period of time.
Consequently, for those infants who are formula-fed, there are no substitute foods available. No formula means no food for baby. Period. End of Sentence. End of Discussion.
A Market With Very Few Suppliers
While infant formula is well nigh an irreplaceable good, within the United States there are only four major producers of infant formula:
Four major companies in the U.S. make baby formula — Abbott, Nestle, Mead Johnson, and Perrigo. Abbott sells Similac baby formula and some of the Similac products, especially the Similac Pro Comfort Total, have been in short supply.
Mead Johnson brands their baby formula as Enfamil, while Nestle sells the Gerber range of infant formula. Perrigo makes generic baby formulas. There are over 50 baby formula brands in the U.S.
While a number of store chains sell private label formula, just as with other private label items, the formula is in almost every instance actually manufactured by one of the four majors.
Thus, even with 50 infant formula brands, the market has an extremely narrow base of suppliers. As with any structure, physical or conceptual, a narrow base inherently makes for an unstable foundation. When the supply chain gets strained, having only four suppliers means there are not that many links to be broken.
A Growing Problem That Is Getting Worse
While media attention on the infant formula shortage is of fairly recent origin, the shortage itself has been developing since the middle of 2021.
Datasembly’s real-time hyper-local data analysis shows that baby formula stock was relatively stable for the first half of 2021, with out-of-stock (OOS) fluctuation between 2-8%. The OOS detail shows that in April 2022 baby formula shortages hit 30% and jumped to 40% at the end of month.
For the first week of May the nationwide OOS situation for baby formula continues to climb. The nation-wide OOS percentage is now at 43% for the week ending May 8th.
Let that last sentence sink in for a moment (emphasis mine):
The nation-wide OOS percentage is now at 43% for the week ending May 8th.
Almost half the amount of infant formula needed for American infants is no longer available. The prices are not merely risen, the product has literally disappeared from store shelves.
The reasons why are a perfect storm of events, from COVID-19 lockdowns and supply disruptions to steadily mounting Producer Price Inflation (thereby raising the cost for the four infant formula suppliers).
CEO of Datasembly Ben Reich stated, “This issue has been compounded by supply chain challenges, product recalls and historic inflation. The category started to see stocking challenges beginning in July 2021, and the situation has continued to worsen into 2022.
While the shortage has been growing steadily since mid-2021, the problem began reaching crisis levels earlier this year, as more and more reports of stores running out of infant formula began to make their rounds of the news media.
Many parents around the country are reporting the same thing: bare shelves or very low stocks of baby formula — from New York to Washington state. The Infant Nutrition Council of America acknowledged there are some supply issues.
"Broadly, there are reports of challenges across retail supply chains, from transportation and logistics to some anecdotal evidence suggesting pantry-loading behaviors, which can put increased pressure on in-store inventory," a spokesman for the group said in a statement.
The initial causes of the shortage were rather obviously attributed to lockdown-instigated disruptions of various supply chains for goods and services, as well as labor force disruptions.
The shortages are likely driven by a combination of supply chain issues, including a scarcity of certain ingredients used to make formula, as well as staff shortages that make it difficult to get products out of warehouses and onto store shelves, Erin Moore, a pediatric nurse practitioner and certified lactation counselor in Austin, said.
Regardless of the cause, however, the impact is the same: no food for baby.
In February, the shortages were compounded by an FDA-initiated “voluntary” recall by Abbott Nutrition of infant formula products manufactured at its Sturgis, Michigan facility.
the U.S. Food and Drug Administration announced it is investigating consumer complaints of Cronobacter sakazakii and Salmonella Newport infections. All of the cases are reported to have consumed powdered infant formula produced from Abbott Nutrition’s Sturgis, Michigan facility. As a result of the ongoing investigation, along with the U.S. Centers for Disease Control and Prevention and state and local partners, the FDA is alerting consumers to avoid purchasing or using certain powdered infant formula products produced at this facility. This is an ongoing investigation, and the firm is working with the FDA to initiate a voluntary recall of the potentially affected product.
The recall led to the suspension of production at the Sturgis plan which is ongoing as of this writing.
A Broken, Distorted, Economy
As I noted at the beginning of the year, rising inflation in the United States showed the extent to which the US economy had become distorted and dysfunctional as a result of government response to the Pandemic Panic Narrative.
While at that point I was focusing on consumer inflation, producer inflation—the costs to American manufacturers to produce goods and ship them to market—have been rising as well. As costs of production translate into prices to consumers, producer inflation feeds into consumer inflation. It comes as no surprise, therefore, that the Producer Price Index, just as with the Consumer Price Index, has been rising significantly both last year and this year.
More crucially, energy costs as well as transportation and warehousing costs have been rising for producers faster than the overall PPI. It also warrants noting that the components of the PPI, just as with the components of the CPI, are increasing at different rates, indicating a growing disequilbrium to producer costs in much the same fashion as I have shown to be the case with consumer prices.
This disequilibrium greatly increases the overall cost involved not just in regular production of goods, but in increased production of goods. With just four suppliers of infant formula in the United States, any disruption to any one supplier—i.e., the closure of Abbot's Sturgis plant—is becoming increasingly difficult for the three remaining suppliers to ramp up production to cover.
Since the shutdown of Abbott Nutrition’s Sturgis facility, other manufacturers have struggled to quickly increase production because their operations are geared toward a steady level of consumer demand, according to Rudi Leuschner, an associate professor of supply-chain management at Rutgers Business School.
“Some industries are very good at ramping up and ramping down,” Dr. Leuschner said. “You flip a switch and they can produce 10 times as much. Baby formula is not that type of a product.”
On top of the broader supply-chain issues that have emerged during the coronavirus pandemic, such as labor shortages and difficulty securing raw materials, the problem may be compounded by panic-buying, Dr. Leuschner said.
Consequently, while the four formula suppliers’ production lines might function exceedingly well under “normal” conditions, when externalities such as the pandemic as well as government mandated lockdowns and work suspensions occur, those production lines quickly rupture and break. A 43% Out-Of-Stock rate nationwide for infant formula shows those production lines to be well and truly broken.
Government Gets In The Way—Again
As has become typical in any disruption to the routines of American lives, the politicians have been quick to pontificate, point fingers, and generally avoid providing any meaningful solutions to the problems.
Senator Cotton’s call for transparency makes for a nice tweet and an sound bite, but what is needed is infant formula (preferably without cronobacter and salmonella contamination). The FDA does not make infant formula, Abbott Nutrition does, and it is Abbott Nutrition that needs to get the Sturgis facility back online. The FDA’s role is to ensure the plant is clean and safe to operate, and then get out of the way.
Ensuring the plant is clean and safe to operate, alas, has been something of a problem for the FDA, as complaints about the Sturgis facility made their way to the agency in October of 2021, roughly four months before the recall of products made there was initiated.
A whistle blower document regarding product safety at a plant that manufactured infant formula linked to a deadly, ongoing outbreak provides damning information against Abbott Nutrition, the maker of Similac and other popular formulas that have been recalled in relation to the outbreak.
The document, sent to top officials at the Food and Drug Administration in October 2021, sparked outrage from U.S. Rep. Rosa DeLauro who has already demanded information from the FDA regarding the cronobacter outbreak among babies. DeLauro, D-CT, on April 28 shared a redacted version of the whistle blower complaint and renewed her criticism of FDA and Abbott Nutrition for their slow response to the outbreak in which at least four babies have been hospitalized, with two having died.
In addition to the disturbing corporate governance issues raised in the whistleblower complaint, lax and inept enforcement of government regulations by the FDA has only served to exacerbate the problem.
When The Economy Breaks, Government Is The Problem, Not The Solution
The infant formula shortage is a made-in-America example of why and how government meddling in economic matters generally ends badly. We don’t need to look all the way to China for examples of government run amok (although there are lessons there we do well to learn), for we have good examples right here at home. The infant formula shortage is but the latest one.
Government “experts” ignored the facts and the evidence and ordered the lunatic lockdowns.
Government “experts” ignored the facts and the evidence and magically created trillions of “stimulus” dollars, then spread them around, triggering the inflation we have today.
Government bureaucrats ignored problems at Abbott Nutrition until they could no longer be ignored, making the problem worse and not better.
Government bureaucrats have played a role in the Sturgis plant remaining closed for months—just how long does it take to clean the place?
At every turn in the infant formula fiasco, there is a government official mucking up the works. At every turn, there is a government official who fails to appreciate the consequences of what they have done: no food for baby.
What Ronald Reagan said in 1980 is still true today: “Government is not a solution to our problem, government is the problem.”