Why the strongest economy in the world can not feed its babies

Lack of infant formula in US / Photo: EPA-EFE / ETIENNE LAURENT

Deficiency of infant formula is one of the main topics in the United States. President Biden's administration has even been forced to activate the Defense Production Act, which gives the president the power to run the country's industry to protect national interests. In recent days, the US military has even been involved in delivering infant formula to the United States from Europe by military aircraft.

On average, 40 percent of baby formula stocks are depleted, in some states more than half, and in some stores completely depleted. This means that shopping is difficult and sometimes you need to visit several stores, often by car, to be able to buy this extremely important food.

The stock of milk formulas for babies was between 2 and 8 percent in the first half of 2021, but began to grow sharply last July. Between November 2021 and the beginning of April 2022, the stock shortage rate jumped to 31%. It rose to 40 to 50 percent during April.

Most affected are the poor, who have fewer opportunities to travel long distances in search of formulas, nor the financial ability to pay higher prices. Some parents became so desperate that they diluted the formulas so that they could last longer, and the practice of making homemade formulas based on World War II recipes emerged.

Americans drive for hours from store to store to provide milk for their babies / Photo: EPA-EFE / ETIENNE LAURENT

Major US pharmacies and retail chains such as Target, Walmart, CVS and Walgreens have already limited the amount of baby formula available. Pediatricians warn that the shortage could have a very negative impact on the development of newborns and babies, which will have unforeseeable consequences in the future, but that dilution is not a good solution, and especially pointed out the danger of home-adapted dairy products.

How did the United States not have enough food for newborns?

There are several reasons why the strongest economy in the world can not feed its most vulnerable, newborns and babies. Part of it is simply bad luck, but the main reason is political, ie. bad government policies were most conducive to creating scarcity.

The cause of the shortage is definitely the voluntary withdrawal of formulas from the manufacturer Abbott Nutrition, the largest in the United States, after several newborns were hospitalized due to a bacterial infection, and all were fed with the formula of that manufacturer. They closed their main factory, also the largest in the United States.

Approximately 90% of US production is accounted for by only four corporations: Abbott Nutrition, Reckitt Benckiser, Nestle USA and Perrigo. The question is why the market supply of 330 million people is left in the hands of only four corporations. Even more bizarre, why EU formulas can not be easily introduced, especially given the great trade ties between the US and the EU.

The main reason is the artificially set regulatory barriers set by the state, ie. US Food and Drug Administration (FDA). These regulations are designed to protect consumers and regulate the health of products, but they also set barriers to market entry.

The state bureaucracy created the conditions for disaster

Product approval, conducted by the US Food and Drug Administration, is a very long, bureaucratic and expensive process. One now gets the impression that this is not only for the protection of consumers, in this case infants and babies, but also for the protection of large corporations.

baby formula milk
Empty shelves in Los Angeles stores / Photo: EPA-EFE / ETIENNE LAURENT

It is really bizarre that in the United States under the same conditions can not be sold formula milk formulas for babies from the EU, whose production is strictly regulated by health. Some yes, but also formulas that have already been tested by health regulators in the EU have to go through the whole process again with the US Food and Drug Administration.

Standards between EU health regulators on the one hand and US health regulators on the other are not aligned. A product can be perfectly healthy in the EU and declared defective in the US.

For large quantities, the import tax on formula i may exceed 17 percent. Under President Donald Trump, the United States signed a new North American trade agreement that actively discouraged the import of formulas from Canada.

This preserves the oligopoly of the big corporations in the USA, whether they are new manufacturers from the USA or imported products from the EU. The guardian of the corporate oligopoly is the federal government in the United States, namely the Food and Drug Administration (FDA).

The closure of the largest factory for infant formula, responsible for half of the total production of the largest manufacturer in the country, is a serious shock even in the best of times. But that in itself would not have led to shortages if the market had not been over-regulated to protect the four corporations, which make up 90% of production.

The Covid-19 pandemic has increased the likelihood of a catastrophe

Of course, the pandemic also contributed to the shortage, disrupting traditional supply chains. Due to the introduced policies to prevent the spread of the disease, entire sectors of the economy have been closed, transport has been slowed down, and trade and transport processes have generally stalled.

No milk in New Jersey / Photo: EPA-EFE / JUSTIN LANE

The balance between supply and demand was upset several times. First, people panicked and bought dairy products for fear of shortages, to which producers had to respond with increased production to meet demand, followed by a sharp decline in artificial milk supplies when people realized there would be no shortage of covid- 19.

In a perfect market, such sudden changes in supply and demand would be met with a rise and fall in prices, but a baby formula market is far from perfect. The composition of the formulas is strictly regulated, which can be justified from a health point of view for greater protection of newborns and babies, but a good part of the regulations exist solely to make it difficult for new manufacturers to enter the market and thus protect the oligopoly of four corporations.

Warplanes take off to prevent a catastrophe

Eventually, an investigation by the US Food and Drug Administration revealed illicit bacteria in a closed factory, the largest in the United States. But the bacteria found are not the same bacteria responsible for hospitalization and infant death, suggesting that these cases are not related to Abbott Corporation's infant formula.

The factory will still be thoroughly cleaned before restarting production, but it will be several weeks before products from it are found on store shelves, which would reduce the shortage.

Military aircraft involved in the transport of milk formulas from Europe / Photo: EPA-EFE / STAFF SGT. JACOB WONGWAI / US AIR FORCE HANDOUT HANDOUT EDITORIAL USE ONLY / NO SALES

President Joe Biden has signed into law access to infant formulas, which has been backed by both parties in Congress, and seeks to protect women, infants and children from continuing to receive infant formula even in times of need. Special nutrition supplement program for women, infants and children.

About half of formulas in the United States are purchased through that social assistance program, but the program is very restrictive in the sense that it only allows the purchase of formulas with brands from several manufacturers. Specifically, 89 percent of the formulas sold through that program are with one brand, the aforementioned Abbott Nutrition.

Operation Fly Formula has also been launched, authorizing the Department of Health and the Department of Agriculture to use Department of Defense transport aircraft to urgently import baby formula. On Sunday, May 22, the first plane landed, with 137 pallets of formulas made in Switzerland, from where the cargo was transferred by truck to Germany, where it was sent to the United States by C-17 military transport aircraft.

The second plane landed in the United States a few days after the first, with 114 pallets of infant formula. By the end of the first phase of Operation Fly Formula, 1,5 million doses of baby formula are expected to be sent to EU warplanes in the United States. It is estimated that this will be enough to delay the disaster until production resumes at the largest US factory that was closed.

Excessive state regulations have created the conditions for disaster

Although at first it seems that this is a failure of the free market to provide production and supply of very important products, everything is based on various state regulations that restrict the free market. Of course, there is no perfect free market, but there is a big difference between the necessary consumer protection regulations, in this case infants and babies, and the excessive regulations restricting the entry of new manufacturers into the market, protecting large corporations and restricting international trade for to protect domestic production.

Prescribing unnecessary regulations, overloading with bureaucratic regulations, collecting permits, certificates and other "papers" are indirect forms of restricting the functioning of the market, called the "red tape". Unnecessary, unnecessary and even harmful regulations are often used to protect existing companies at the expense of new companies. This creates barriers to entry and protects the big ones, at the expense of the small ones and the cost to society as a whole.

This way of functioning of the state bodies is always justified by the protection of the clients, the protection of the jobs and the protection of the domestic industry. However, in the end, they do not protect any of the above, but aim to protect large companies and corporations that through politics protect their own financial interests, to the detriment of society as a whole.

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