We Know How to Create Shortages

At the Wall Street Journal Jesse Newman and Jaewon Kang report that, although it isn’t making headline news as it did a month ago, the shortage of baby formula has little abated:

U.S. stores are still struggling to stock baby formula despite monthslong efforts by manufacturers and the Biden administration to boost supplies.

Availability of powdered formula products in U.S. stores earlier this month dropped to the lowest level so far this year, with about 30% of products out of stock for the week ended July 3, according to the market-research firm IRI. While availability improved slightly last week, out-of-stock levels remain higher than in recent months, and shortages remain acute in states including Alaska, Utah and Wyoming, IRI data showed.

At the same time, consumers are finding fewer choices of brands, sizes or formats of formula on grocery-store shelves as the variety of available products shrinks. U.S. supermarkets over the four weeks ended June 26 sold an average of 11 different formula products per store weekly, according to IRI, compared with a weekly average of 24 from 2018 to 2021.

and

Formula supplies have run low partly because of a surge in buying earlier this year that depleted store inventories, said Krishnakumar Davey, president of client engagement at IRI. Mr. Davey said consumers are now working through supplies at home and buying smaller-size containers when they do make purchases.

The baby-formula shortage, sparked by supply-chain problems and the shutdown of a major plant, has for months left parents and caregivers scouring stores and websites for formula to feed their babies. The Covid-19 pandemic caused disruptions beginning in 2020, with problems for some formula makers tied to shipping, raw materials and packaging. In February, Abbott Laboratories, which makes Similac and other brands, halted production at its factory in Sturgis, Mich., and initiated a recall while food-safety regulators investigated a possibly deadly contamination.

Abbott restarted its Michigan plant—which had been responsible for producing roughly one-fifth of U.S. formula—in early June, but stopped less than two weeks later after thunderstorms flooded part of the facility. Abbott said last weekend that it had reopened the plant again on July 1 and restarted production of EleCare formula, made for babies with digestive problems, which will begin shipping in the next few weeks. Abbott is working to resume production of its widely sold formula Similac as soon as possible, the company said.

Abbott has imported tens of millions of pounds of formula from its manufacturing facilities in Ireland and Spain, the company said.

The balance of the report largely consists of statements from major retailers, e.g. Piggly-Wiggly, Kroger, Hy-vee, etc. that the situation is little changed from what it was a month ago.

Let’s be very clear about this. Although there are multiple culprits in this problem, it was a catastrophe waiting to happen given the construction of WIC or, in other words, the primary culprit is Congress. WIC created an oligopoly and what we’re seeing are the risks of having oligopolies. And make no mistake oligopoly is the situation preferred by the federal bureaucracy. Big Government likes doing business with Big Business. It’s easier to manage the relationships with a very few extremely large companies than it would be to wrangle thousands of companies.

And it’s not just baby formula. Practically every sector of the economy has the same problem. Just google “industry consolidation”. There are fewer companies in almost every sector than there were 25 years ago and the rate at which start-ups are formed has declined. This problem will recur over and over again in different sectors, possibly with less urgency and less publicity, until we reform how our government works.

And again I don’t think the solution is laissez-faire. We have government regulations for good reasons. Congress and federal agencies need to do their jobs rather than identifying the jobs they want to do and doing that.

I also suspect that when you dig into the composition and manufacturing of baby formula we would find that Shanghai’s lockdown and bottlenecks in West Coast shipping are significant factors but that is fodder for another post.