Parents across the U.S.
are scrambling to find baby formula.
Empty store shelves, higher prices, and retailers limiting sales have made
anxious parents even more nervous about their kids' health.
You get this sick feeling in the pit of your stomach because we had a can that
had been recalled and it was empty.
We had just finished it.
And, you know, I'm sitting there thinking, Oh my God, what have I given
my child?
Abbott, the nation's biggest infant formula maker, recalled several products
and shut down its Michigan manufacturing plant in February after
bacteria was found at the site.
Four infants who consumed formula produced at the facility got sick with
an infection. Two of those infants died.
The current formula shortage has real consequences.
Babies and children are suffering.
Parents are nervous wrecks trying to get this.
I've heard stories from pediatricians who have seen malnourished children.
It's kind of like a perfect storm of so many terrible things happening.
And number one should never have happened in the first place.
And we could have absolutely prevented it.
By early May, 40% of baby formula in the U.S.
was out of stock. And the problem has continued.
And it wasn't just a factory shutdown that led to the crisis.
America's strict formula import regulations and a nutritional program
for low-income families may have contributed to the disaster, but some
signs of progress suggest the crisis could be easing.
In June, Abbott reopened its Michigan facility, and that same month, a fifth
flight carrying baby formula from abroad arrived in the U.S.
So what led to the baby formula crisis in the U.S.
in the first place? And how can the nation avoid this happening again?
Amy Dolan and her husband, Brian, live in Flanders, New Jersey with their three
kids. A milk protein allergy means their youngest son, Connor, requires
specialized formula.
We had to do a little running around, but we were able to get a prescription,
find a pharmacy, and thought everything was great.
We were getting deliveries of our formula and Connor was doing well on it.
But that changed after baby food manufacturer Abbott recalled several of
its products and closed its plant in Sturgis, Michigan.
Up to 25% of the nation's baby formula came from that facility.
The Dolan's had 16 cans of formula in their pantry at the time, 14 of which
were recalled, including one they had just finished.
I was scared out of my mind, you know.
You had seen that the recall was because there were several babies who
had gotten pretty sick and I didn't want our baby to get sick.
It also meant the couple, along with countless other parents, had to scramble
to find a replacement as stores nationwide began running out of formula.
A friend of mine walked in and I said, They're supposed to be right here.
And there was nothing.
And I called Brian and I said, There's no formula.
Our formula is not there.
I don't know what to do.
Shopping online proved problematic as well, with shipping delays, limited
supplies and price gouging on some websites.
You'd see out of stock, not available, estimated shipping eight, ten, 12 weeks
away. So online, we were sort of watching it go up.
And it went from about $45 a can to about $85, $87 a
can. We found one one night that was four cans for $500.
Enlisting family and friends, the couple went on a nationwide search for baby
formula.
And we finally found two cans in Newark, Delaware.
It was Buy Buy Baby, and it was in Delaware, and they had two cans, and
that was the last cans they had.
And I said, Would you hold them?
And I said, I'll leave right now.
It'll take me a couple of hours to get down there.
And drove just over two hours to get down there to pick up the two cans and
drove the two hours back.
And although the couple has managed to keep a supply of formula at home, they
have formed contingency plans.
And those plans might come in handy.
It could be the end of July before store shelves are filled with baby
formula again, according to FDA commissioner Robert Califf.
In the meantime, experts advise parents facing a shortage to consider using a
store brand generic formula, switching from a milk-based formula to a different
variety, like a soy-based formula, if possible.
And do not make your own formula or dilute your baby's formula by adding
water.
I worry about everything now.
I worry about if I run out of formula, will I have enough different foods to
give him that will give him enough protein and give him enough of what he
needs? Connor, do you want to go down again?
One more time?
Say one more time?
Ready?
Driven by an increase in working women, the U.S.
baby formula market is expected to reach $5.8 billion in 2027, almost 60% higher
than in 2019.
A few companies dominate the market.
There's Illinois-based Abbott, Chicago-based Mead Johnson Nutrition,
which is a division of Reckitt, and Swiss company Nestlé makes Gerber
products. Perrigo manufactures store brand formulas for retailers like Target
and Walmart.
Because baby formula is a sole source of nutrition for a vulnerable population,
the market is highly regulated by the FDA, which sets rules for everything,
from nutrient requirements to packaging, labeling, and production.
In a House committee hearing on formula safety, the FDA faced sharp criticism
for its slow response in investigating the crisis at Abbott's Michigan plant.
The FDA didn't act decisively until parents and the media coverage forced
them to move publicly.
FDA failed to react promptly to the warning signs it was getting about the
Abbott Nutrition plant.
Frankly, the inspection results were shocking.
Standing water; cracks in the key equipment that present the potential for
bacterial contamination to persist; leaks in the roof; a previous citation
for inadequate handwashing and current poor foot sanitation; bacteria growing
from multiple sites; and many signs of a disappointing lack of attention to the
culture of safety.
CNBC reached out to Abbott, but they declined our request for an interview.
To ease nationwide shortages, President Biden invoked the Defense Production
Act, requiring companies to prioritize the allocation of baby food ingredients.
The FDA relaxed regulations on imports from abroad, including Britain.
At the same time, manufacturers ramped up production and a military cargo
flight shipped infant formula from Europe.
But with parents still struggling to find formula, many experts say those
efforts aren't enough.
And the baby food crisis that has been brewing for years may have been
preventable.
On the one side, people stopped having babies during the pandemic.
And so that really caused demand predictions and forecasts to change for
the sector. Then, as things lined up, people started having babies again.
Formula makers have also faced a laundry list of pandemic-era supply chain
issues, including labor, trucking, and packaging.
Shortages, in turn, led to hoarding by some parents.
Being a parent who had a child on formula myself, I can tell you, when
those shelves get a little bare, you buy extra.
And America's regulatory and trade policy may be to blame too.
About 98% of baby formula consumed in the U.S.
is produced here.
Due to decades of protectionist lobbying from the U.S.
dairy industry and from Abbott and other formula producers, there are high
tariffs on imports of infant formula and other dairy products.
In fact, the most common forms of infant formula imported in the United
States from most countries are subject to a tariff of 17.5% that actually goes
up after you import certain quantities.
America's free trade partners have also been targeted.
Under the Trump administration, in July 2020, the U.S.
entered into the United States-Mexico-Canada Agreement, a
substitute for NAFTA.
One of its provisions targeted Canadian infant formula manufacturers.
About half of infant formula in the U.S.
is purchased through the Women, Infants and Children's Program.
Launched in 1974, a major tenet of the program is to provide vouchers to lower
income families to purchase infant formula.
In 2021, an estimated 6.2 million people participated in WIC.
It works like this: in general, each state awards a sole-source contract to a
formula manufacturer.
In exchange for the exclusive agreement, the manufacturer provides a
deep discount that could range from 85% to 90% below the wholesale price.
Manufacturers benefit by getting the government stamp of approval, and larger
shelf space in stores means non-WIC shoppers end up buying that brand too.
This gives that producer pretty significant market power, allowing it to
raise prices in the non-WIC market and muscle out competition.
So further concentrating the market.
Take California, for example.
In 2007, California, which has the largest number of WIC participants,
switched its contract brand from Abbott to Mead Johnson.
Abbott's market share plummeted from 90% to 5%.
Mead Johnson's market share had the opposite effect, increasing from about
5% to 95%.
And market concentration has proved to be devastating when problems arise.
So when Abbott's facility gets shut down, when Abbott recalls a lot of
product, well that causes WIC consumers to scramble for non-WIC product as the
USDA issues waivers to do that.
But it also just punches a giant hole in the U.S.
market.
In 2015, for example, Abbott was the sole-source WIC provider in 23 states
and the District of Columbia, followed by Meat Johnson in 18 states, and Gerber
in nine states.
You know, it's inhumane for a government system to be created where we're relying
on the government to give a certain population product to feed their babies
and then for the system to fail them.
That's not right.
Critics say that concentration has also hampered innovation.
But that may be starting to change.
Several brands have launched in recent years, including direct-to-consumer
brands like Bobbie, who works with manufacturer Perrigo, and ByHeart.
Launched in March 2022, ByHeart is the first new infant formula manufacturer to
be registered with the FDA in over 15 years.
Both companies are not accepting new customers as of early June.
ByHeart claims its cleaner ingredients help it get closer to breast milk than
other brands with a recipe that doesn't contain corn syrup, gluten, GMO, or palm
oil.
Product innovation has been stifled, really, at the expense of families.
What ByHeart elected to do was really build entirely from the ground up to
acquire our manufacturing in Reading, Pennsylvania and build our supply chain
from farm to formula, which allows us to continue to innovate beyond the
industry standard.
While the company says it currently supports thousands of babies, new
investments could help it feed up to half a million babies annually, or
roughly 14% of new births each year.
But there needs to be more manufacturers and innovators so that we never find
ourselves again in the position where parents are so vastly underserved and
under-supported.
Increased competition would be welcome news for stressed out parents too, who
crave more options as they seek to better care for their children.
This is all a baby eats for their first few months, and I never thought I'd have
to worry that the formula wasn't safe or that there could be a problem.