U.S. Regulatory and Trade Policy Has Contributed to the Baby Formula Shortage 

Americans are experiencing high prices and shortages of many important products including a severe baby formula shortage.

The primary cause of this baby formula shortage is clear — government bureaucracy in the form of overregulation, supply chain shortages, and protectionist trade policy.

While Democrats continue pushing policies that will exacerbate existing shortages and high prices, the FDA has recognized that the solution to this problem is cutting red tape and has begun relaxing regulations to combat the shortage. 

Nationwide, a whopping 43 percent of baby formula is out of stock. Several retailers have decided to limit purchases of formula. Because so many parents depend on formula to nourish their children, this particular shortage could have devastating effects.  

In February, Abbott Nutrition voluntarily recalled formulas manufactured at its plant in Michigan due to four bacterial infections possibly being linked to the products.

However, recalls are common for drugs and don’t usually cause a meltdown at pharmacies or require rationing. 

Instead, the culprit is government red tape. Baby formula is one of the most tightly regulated food products in the U.S., with the FDA dictating, as the New York Times notes, “the nutrients and vitamins, and setting strict rules about how formula is produced, packaged, and labeled.” 

Most of the formula manufactured in Europe is illegal in the United States, despite many of them meeting FDA nutritional guidelines and being, arguably, healthier than American formula. In fact, some parents go so far as to smuggle European formula into the U.S.; the New York Times described entire Facebook groups being devoted to parents who use these illegal imports.   

Even for formulas that are legal to import, the tax on the importation can exceed 17 percent.  

As Derek Thompson of the Atlantic explains, the federal government is the largest purchaser of infant formula, which has resulted in a few companies having a significant portion of market share:  

“America’s formula policy warps the industry in one more way. The Department of Agriculture has a special group called WIC—short for Special Supplemental Nutrition Program for Women, Infants, and Children—that provides a variety of services to pregnant and breastfeeding women and their young children. It is also the largest purchaser of infant formula in the United States, awarding contracts to a small number of approved formula companies.  As a result, the U.S. baby formula industry is minuscule, by design.” 

Even the FDA recognizes that government is the problem, as several of the steps they’re taking to combat the crisis involve lifting regulations and trade restrictions. In a press release a few days ago, the FDA lists the steps they’re taking to improve the supply of formula:  

• Helping manufacturers bring safe product to the market by expediting review of notifications of manufacturing changes that will help increase supply, particularly in the case of the specialized formulas for medical needs.  

• Expediting the necessary certificates to allow for flexibility in the movement of already permitted products from abroad into the U.S. 

• Offering a streamlined import entry review process for certain products coming from foreign facilities with favorable inspection records. 

• Exercising enforcement discretion on minor labeling issues for both domestic and imported products to help increase volume of product available as quickly as possible. 

• Not objecting to Abbott Nutrition releasing product to individuals needing urgent, life-sustaining supplies of certain specialty and metabolic formulas on a case-by-case basis that have been on hold at its Sturgis facility. In these circumstances, the benefit of allowing caregivers, in consultation with their healthcare providers, to access these products may outweigh the potential risk of bacterial infection. The FDA is working to ensure health care provider associations and stakeholders understand information about the risks and benefits of pursuing this product. 

In the height of the coronavirus pandemic, the nation was swept with massive deregulation efforts. In fact, ATR collected a list of 846 regulations waived across the nation during the pandemic. These regulations helped lighten economic blows, expand Americans’ access to care, and facilitate the rapid creation of life-saving treatments and vaccines. 

Moving forward, lawmakers should look to deregulation to ease prices. Instead, the Biden administration continues pushing tax increases that would make these problems worse.

President Biden’s proposed Fiscal Year 2023 budget proposal is packed with trillions in new spending and tax hikes on the American people. His budget includes 36 tax increases on American individuals and businesses totaling $2.5 trillion over the next decade. This includes 11 tax increases on the oil and gas industry at a time when the price of gasoline is at record highs. 

Biden’s proposal includes massive tax hikes on businesses, like hiking the corporate income tax rate to 28 percent, imposing a 15 percent global minimum tax, and increasing the top individual income tax rate which will hit pass through businesses. These tax hikes will be passed on to consumers through higher prices. According to a 2020 National Bureau of Economic Research paper, 31 percent of the corporate tax rate is borne by consumers through higher prices of goods and services. 

If regulations and other restrictions can safely be waived in a time of crisis, it is unlikely that they were necessary in the first place. If Congress is serious about preventing a crisis like this from happening again, they should look at ways to reduce the burden on baby formula manufacturers and lighten restrictions on the importation of baby formula. Certainly, Democrats should not exacerbate the problem of high prices and shortages with massive spending initiatives and tax hikes.