Minnesota Congresswoman Ilhan Omar and 25 other House Democrats on Friday called for a federal probe of the nation’s concentrated baby formula industry amid a national shortage that has prompted emergency action from lawmakers and the White House.
“We are writing to urge the Federal Trade Commission (FTC) to work with relevant federal agencies to investigate the U.S. baby formula industry and study any unfair or unsustainable practices, like deceptive marketing, price gouging, and stock buybacks, that may be weakening our nutritional formula supply and ultimately harming our constituents,” states the Democrats’ letter to the agency’s chair, Lina Khan.
Abbott makes 43% of all formula. Its factory was shut down because it gamed safety tests & skipped repairs to cut costs.
Instead, it spent ~$10 billion on dividends for wealthy shareholders since 2019. pic.twitter.com/07C7pDmhRE
— More Perfect Union (@MorePerfectUS) May 20, 2022
While acknowledging that the ongoing Covid-19 pandemic has caused supply chain issues, the letter also suggests that “the gradual consolidation of the baby formula market may be worsening these disruptions and deficiencies,” highlighting that Abbott Nutrition, Nestlé, Perrigo, and Reckitt Benckiser collectively control about 90% of the U.S. market.
“This type of high market concentration may come at the cost of decreasing market redundancy and flexibility while increasing the risk of sector-wide shortages — even if a single plant ceases manufacturing,” the document notes, referencing Abbott’s recent facility closure and recall.
The lawmakers are also concerned about how the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) could be contributing to “such alarmingly high concentration” in the industry, due to exclusive contracts granted for the program, which boosts formula access for low-income families.
“We must make sure that no corners are being cut on any level when nutritional formula is such a necessity for many Americans,” the letter asserts. “That is why we are requesting that the FTC use its 6(b) authority to conduct a wide-ranging study on the consolidation of the nutritional formula industry.”
As the letter lays out:
The FTC should work with other federal partners to provide a report on the economic and health impacts of the formula industry’s fragile supply chain and manufacturing capabilities. It should also include an analysis of business and financial practices by these formula companies that could be contributing to declines in affordability, consumer choice, and product quality. Lastly, this report should have recommendations to Congress and regulators on improving federal programs and regulatory or enforcement actions to strengthen domestic supply, prevent future shortages, and stabilize formula prices for all American families.
The Democrats are hoping for a response from Khan within the next month. Their call for FTC action came within hours of The Guardian reporting on financial documents and whistleblower testimony about how Abbott used recent windfall profits to enrich shareholders even as equipment at a factory that was later shut down in connection with bacterial contamination “was failing and in need of repair.”
President Joe Biden on Wednesday invoked the Defense Production Act to increase the U.S. supply of baby formula and launched “Operation Fly Formula,” which is using Defense Department planes to speed up imports.
Biden is also expected to sign the Access to Baby Formula Act, which Congress approved this week. The legislation allows the U.S. Department of Agriculture to waive requirements to enable families to keep buying formula with their WIC benefits.
The House also passed a bill to provide $28 million in emergency funding for the U.S. Food and Drug Administration to address the formula shortage and prevent similar events in the future, but that measure faces an uncertain future in the Senate.