FTC Probes Baby Formula Shortages in the US, Wall Street Journal Reports

Investigation: FTC Probes Baby Formula Shortages and Collusion in US Market. Supply Chain Analysis, Bidding Process Impact, and Market Implications Explored.

May 24, 2023 - 12:32
May 24, 2023 - 12:33
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FTC Probes Baby Formula Shortages in the US, Wall Street Journal Reports
FTC Probes Baby Formula Shortages in the US

In response to the prolonged scarcity of baby formula on store shelves across the United States, the Federal Trade Commission (FTC) has launched an extensive investigation. The aim is to determine whether collusion occurred among baby formula manufacturers during the state contract bidding process, as reported by the Wall Street Journal. Additionally, the FTC is examining the broader implications of industry coordination on sales beyond the Women, Infants and Children (WIC) formula-supply program.

Unraveling Collusion Among Formula Manufacturers:

Citing documents available on the FTC's official website, it is evident that Abbott Laboratories and other formula manufacturers are under scrutiny to ascertain whether they participated in collusion or coordination during the bidding for state contracts. The investigation intends to uncover any potential unfair practices that may have contributed to the persistent shortage of baby formula products.

Cooperation and Company Responses:

Abbott Laboratories has affirmed its full cooperation with the FTC's information requests, aiming to provide all necessary details pertaining to the investigation. In a previous response to the FTC on March 16, Abbott emphasized its lack of knowledge regarding any factual basis supporting the WIC-related inquiry. The company firmly denied any coordination or collusion with competitors concerning WIC contract bidding. Despite the associated burden and costs, Abbott has agreed to comply with the Civil Investigative Demand (CID) to allay any doubts surrounding the transparency of their bidding procedures.

On the other hand, Perrigo, following its acquisition of the Gateway facility and Good Start formula brand from Nestle in 2022, clarified that it did not acquire WIC rights as part of the deal. Consequently, any investigation related to WIC would not involve Perrigo. Nestle confirmed receiving a civil investigative demand from the FTC and assured uninterrupted fulfillment of existing WIC contracts to ensure a continuous supply.

While Reckitt Benckiser, another prominent player in the industry, has not responded to CNN's inquiries, the FTC declined to provide comments on the matter.

The Impact of Formula Shortages:

The severity of the formula shortage became evident in July 2022, with over 20% of all formula products, including more than 30% of powdered formulas, missing from store shelves following a substantial recall by a leading producer. By February 2023, market research firm IRI found that approximately one-third of families with infants under the age of one faced challenges in accessing formula supplies. Alarmingly, over half of these families reported having less than a week's supply on hand, raising concerns about the well-being of infants nationwide.

A Broader Investigation by the FTC:

Beyond addressing the formula shortages, the FTC has undertaken a comprehensive investigation into various aspects of the baby formula industry. This includes examining potential fraud, deception, or scams encountered by consumers during the shortages. The agency has also probed allegations of price gouging by online sellers. Additionally, the FTC has scrutinized the challenges faced by retailers in securing formula supplies, particularly investigating whether smaller independent retailers encounter greater difficulties compared to larger chain retailers. The investigation has delved into the industry's history of mergers and acquisitions, supply chain complexities, and potential regulatory barriers hindering the importation of baby formula brands into the US market.

Conclusion:

The FTC's investigation into the baby formula industry, with a particular focus on collusion among manufacturers during state contract bidding, aims to shed light on the causes behind the persistent shortages experienced by families nationwide. By uncovering potential unfair practices and addressing supply chain challenges, the FTC endeavors to ensure a reliable and accessible supply of baby formula for the well-being of infants and the peace of mind of their caregivers.

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