The editors of the Wall Street Journal do their own analysis of the reasons for the shortage of baby formula:
One reason the market is so concentrated is tariffs up to 17.5% on imports, which protect domestic producers from foreign competition. Non-trade barriers such as FDA labeling and ingredient requirements also limit imports even during shortages.
Canada’s strong dairy industry has attracted investment in formula production. But the Trump Administration sought to protect domestic producers by imposing quotas and tariffs on Canadian imports in the USMCA trade deal. The FDA can inspect foreign plants so the U.S. import restrictions aren’t essential for product safety. They merely raise prices for consumers and limit choice.
Further limiting competition is the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) for low-income mothers. By the Department of Agriculture’s estimate, WIC accounted for between 57% and 68% of all infant formula sold in the U.S. Under the welfare program, each state awards an exclusive formula contract to a manufacturer.
Companies compete for the contracts by offering states huge rebates on the formula women can buy. The rebates equal about 85% of the wholesale cost, according to a 2011 USDA study. Women can only use WIC vouchers to purchase formula from the winning manufacturer. These rebates reduce state spending, but there’s no such thing as free baby formula.
Why would manufacturers give states an enormous discount? Because the contracts effectively give them a state monopoly. Stores give WIC brands more shelf space. Physicians may also be more likely to recommend WIC brands. After 30 states switched their WIC contracts between 2005 and 2008, the new provider’s market share increased on average by 84 percentage points.
America’s baby-formula shortage illustrates how bigger government can make big business bigger, thereby limiting competition and choice.
I’m in favor of producing more in the United States but I also support free trade but my support for free trade has limits. For example, I think that tariffs are a completely reasonable way of reducing our dependency for strategic goods and materials on geopolitical competitors.
But barring imports of Canadian baby formula doesn’t fall under that rubric. A short term emergency removing of the tariffs on imported baby formula is completely within the president’s power and President Biden should act immediately. As I have also said, it’s critically important for him and if not him some other government official to instill confidence in American parents that their babies won’t starve. In the longer term there are farther reaching policies and social issues that should be addressed. Maybe eliminating WIC’s reliance on exclusive formula contracts is one of them.
One of the dirty secrets behind monopolies is that while natural monopolies are rare government-created monopolies are embarrassingly common.
Here’s an open question; how much can imports help?
Recall Canada has a population 1/9th of the US. That’s roughly the capacity they have, almost all of it is dedicated to Canadian end-user demand. Canada is likely to announce an export ban on any relaxation of American imports to prevent shortages in Canada.
I am not against imports but I am weary of advocates using a crisis to push their ideological hobby horse.
To think of the problem in a bigger picture. If there is a large speculative / panic / hoarding mentality setting in this country on necessities (of which baby formula is one) — that is a big problem. There isn’t the spare capacity around the world to satisfy every hoarder / speculator; the US is too large.
That’s what I think is happening which is why I emphasize allaying fears as an important component of the solution.
Also it matters less how many people are in Canada than how many dairy cows. There are about 1.5 million dairy cows in Canada compared with about 9 million here. In other words the ratio of cows:people is higher in Canada. Not by a lot but higher. In New Zealand on the other hand the ratio of dairy cows to people is about 1:1.
Note, too, how the media are stoking the panic.
The amount of milk or cows is not currently the limiting factor to increasing supply.
Production is not down. Facilities are working 24/7, producing sharply more. Employment in infant formula manufacturing is actually up. Either we’re in an actual technical panic or something does not add up.
Its not clear to me the citations say what you think they do. In the first one, I searched for unit volumes, not dollar volumes, in IBIS. If formula prices had escalated only in line with other items unit volumes would be down 8-10%.
The second citation deals with other manufacturers. It strains credulity to believe that a major (I had read the largest) plant in America is shut down and the slack has been absorbed by others.
It also strains credulity that 30-40% of retail outlets are out of formula against that backdrop, but also due to hoarding. Hoarding occurs after supply is insufficient. (Although I’m sure hoarding is NOW occurring. But this issue is many months old now.) One would have to contemplate a premeditated Hunt Bros type squeeze of the baby formula market late last or early this year. I think not. If its that easy, what next? A hoarding squeeze on beer, contraceptives………
Lastly, baby formula has a shelf life. If its hoarding, the storage costs and looming one year spoilage issue coming should produce the mother of all supply dumps. Problem solved.
Speaking of good government, and faith in our institutions. We were, right? From Kimberly Strassel. Soon, only steve will be in denial.
“Special Counsel John Durham steps into court Monday with the first trial of his probe into Democrats’ Russia-collusion hoax. That’s a formality. Mr. Durham has already won.
Perkins Coie lawyer Michael Sussmann stands accused of lying to the Federal Bureau of Investigation by claiming the dirt on Donald Trump he fed to the FBI wasn’t delivered on behalf of “any client.†Mr. Sussmann was in the pay of the Hillary Clinton campaign and Democratic National Committee and worked extensively with outside players and the media to produce the collusion narrative as well as documents that stoked FBI probes of Mr. Trump’s 2016 campaign, according to Durham filings. Mr. Sussmann has pleaded not guilty.
Commentators spent last week warring over whether Judge Christopher Cooper’s rulings on the use of evidence would help or hinder Mr. Durham’s case. It doesn’t much matter. Mr. Durham has already accomplished his far bigger goal with this narrow indictment. He’s put every sleazy collusion player in the hot seat, with ramifications beyond the courtroom.
From the day the special counsel released the 27-page Sussmann indictment in September (and the follow-on charges against dossier contributor Igor Danchenko), it’s been clear he had ambitions that went far beyond a conviction for lying. Each of his filings follows the same, deliberate strategy—lengthy briefs and long exhibits full of names, emails and documents, all of which connect the dots and expose the web that enabled this hoax, and the lies that kept it hidden.
Democratic superlawyer Marc Elias isn’t charged, but he also no longer heads the elite political-law practice at Perkins Coie. The firm last August announced Mr. Elias, who’d been there 28 years, was leaving to start his own small practice. A few weeks later, the Sussmann indictment laid bare the role Mr. Elias, a longtime DNC and Clinton lawyer, played in ginning up and distributing the bogus Trump-Russia claims.
Christopher Steele, author of the infamous dossier, once lauded by the press as an international superspy, is now a man in search of a reputation. His dossier’s “intelligence,†Mr. Durham’s documents show, came primarily from a Brookings Institution employee, Mr. Danchenko, who was recycling salacious chatter from a Clinton associate. Whatever work Mr. Steele may find in future, it won’t include assisting the FBI or any other respectable agency.
Fusion GPS, which hired Mr. Steele, has become toxic in Washington. The Durham prosecutions show how the opposition-research firm operates—not by producing real research, but by shopping seamy claims to law enforcement, then browbeating journalists into covering the “investigations†Fusion inspires. (Fusion in court filings says its job was to help Perkins Coie with legal advice—a claim the judge largely rejected Thursday.) The Washington press corps knows it got played—and how. A recent Durham filing released dozens of emails showing reporters at top outlets palling it up with their Fusion narrators, with one Slate writer even sending a draft October 2016 article for Fusion to review. Is the DNC going to hire Fusion anytime soon? Even credulous reporters will think twice before running with another Fusion lead.
Mrs. Clinton won’t be in the courtroom, but the campaign’s claims it was in the dark about the Perkins Coie and Fusion work are in ashes. Mr. Durham’s evidence shows top Clinton aides—including campaign manager Robby Mook—were apprised of allegations and helped circulate them. Also among the circulators was current national security adviser Jake Sullivan, who faces calls to resign given his role.
Then there’s James Comey’s FBI. One downside of the Durham “lying†strategy is that it requires prosecutors to present the FBI as dupes of the Clinton operation. Yet amusingly, this has lured the defense into providing evidence of FBI rot. Mr. Sussmann’s lawyers will argue at trial that their client can’t be found guilty of lying to the FBI, since “they have reviewed more than 300 emails that show the bureau understood Sussmann worked for Democratic campaign entities,†as the Washington Post reports.
The FBI knew all along and ran with unvetted political dirt, even if Mr. Sussmann’s alleged lie allowed it to pretend it was aboveboard. And as the Durham evidence shows, it went on pretending, failing to follow up on Mr. Steele, the dossier or its Clinton origins until long after the election (at which point special counsel Robert Mueller failed to follow up on the FBI for nearly two years more). Most of the FBI’s former leaders have been fired or left, its reputation is in tatters, and the GOP will dig further if it regains Congress this fall.
Many conservatives remain frustrated that Mr. Durham hasn’t pursued far more sweeping conspiracy charges. But conspiracy cases are hard to prove. A sweeping prosecution of high-name figures would cause a political feeding frenzy, and be proclaimed by the media a partisan exercise. A court loss would make it easier for the press to cast the entire effort as debunked.
The narrow prosecution of the little-known Mr. Sussmann has allowed for a focus on the bigger story. Stay tuned for a flood of more information coming out of a trial that on its face is about one lawyer, but in reality is the continuing tale of one of the dirtiest tricks in modern U.S. history.”
The Clintons are just as filthy as they seem.
That’s much my point.
The WIC thing has been in effect for years. It didnt cause the shortage. The tariff has been in effect for a much shorter period of time but long enough I have a hard time seeing it as causative. Probably makes it a bit harder to solve. I also find it very easy to believe that the other producers may have trouble making up a 30%-40% shortfall. I would expect this to be a tight margin enterprise. Why would they build in 40% extra capacity? If they do have it likely takes a while to spin it up. That costs money.
Eliminate the tariff and reduce restrictions on imports. We do that for drugs when needed. That will help solve the current problem but I dont think it tells us how it got started. I think it more likely just some small shortages due to supply chain issues and theft that made it into press coverage and social media. You got hoarding which was then amplified by the MI plant issues.
Steve
That’s pretty much my take which is why I emphasized the atmospherics and the media’s role.
I don’t think we should confuse the underlying cause of the immediate problem with what needs to be done to prevent the problem from recurring. 98% of a market controlled by just three (or even fewer) companies is practically a formula for lack of excess capacity.
The behavior of oligopolies is pretty well-known. They divide the market among themselves and use their aggregate market power to prevent upstarts. Oligopoly, especially oligopoly fostered by federal policy, is itself a problem.
Just in time delivery with no backstock tying up cash and floorspace has it’s
drawbacks as illustrated by the toilet paper crisis.
Did we have congressional hearings on that?
We need to be able to import from other countries.
Steve
As CuriousOnlooker points out, importing infant formula is at best a short term solution. We are simply too big.
If a lot of this is hoarding I think that knowing it is on the way alleviates a lot of that. I know my niece bought extra and is good through the start of July.
Query- There seems to be a lot of variation by state. This article by Lincicome is the single best article i have seen and shortages are especially bad right up the middle of the country.
https://capitolism.thedispatch.com/p/americas-infant-formula-crisis-and?s=w
Steve