How the Baby Formula Shortage Links to a Federal Nutrition Program

“It is horrible that in this country we have a shortage of baby milk. I think we have to respond to that and then review the way we are structuring these contracts,” the representative said. Jahana Hayes (D-Conn.), one of the lawmakers leading the legislation, along with representatives. michelle steel (R-Calif.) and President of Education and Labor bobby scott (D-Va.). The House easily passed the WIC bill Wednesday night, with a rare bipartisan vote of 414 to 9. Lawmakers also passed a $28 million emergency spending bill to help the FDA restock shelves and strengthen food security.

Abbott Nutrition closed its plant in Sturgis, Michigan, in February after it was linked to four cases of a rare bacterial infection. The four babies who got sick they were hospitalized; two died. The company also issued a voluntary recall of key products made there, including Similac, after the FDA discovered major food safety flaws at the plant. Abbott was estimated to control about 40 percent of the US formula market before the recall occurred, and the Sturgis plant is believed to have been responsible for about a fifth of US supply ( The company has not commented on market share or specific numbers.) On Monday, Abbott reached an agreement with the FDA on the steps needed to reopen the plant, which it estimates could take about two weeks.

In addition to Abbott, three other formula makers dominate the domestic market: Mead Johnson and, to a lesser extent, Nestlé and Perrigo. Together, the four companies control about 90 percent of the US formula market.

Abbott’s withdrawal and the resulting shortages were especially detrimental to WIC recipients. About half of all babies born in the US qualify for WIC, which serves low-income families. Many of these households do not have the time or resources to search for alternative formula brands or search the internet for available stock. Even if parents and caregivers were able to find alternative formulas, their WIC benefits might not have covered the specific brand they were able to find when the shortage hit.

For the past three decades, WIC has used what is called a single-source contract, which is designed to save the program money by allowing states to purchase formula well below retail prices. The National WIC Association estimates that state rebates save about $1.7 billion in costs each year. When a state contracts with one company, all WIC participants in the state use that same manufacturer. Only three companies have been awarded contracts during this time: Abbott Nutrition; Mead Johnson, which makes Enfamil; and Nestlé, which makes Gerber.

Abbott leads the pack with 49 WIC contracts with states, territories and tribal organizations, according to data from the National WIC Association. This translates to about 47 percent of the 1.2 million babies receiving formula benefits through the WIC program. Mead Johnson has 15 WIC contracts, including large states like Florida and New York, serving 40 percent of babies receiving formula benefits in the program.

Since then, the Agriculture Department has leaned on pandemic authorities to essentially waive WIC contract restrictions and allow families to use their benefits to purchase any available formula, a setup that means Abbott Nutrition is paying the competition formula in the states where it has contracts. The current WIC bill would codify current emergency authorities for times of crisis in the future, according to Hayes.

“The dirty secret about WIC is that these formula companies actually lose money on the formula they sell through WIC,” because the lowest bidder ends up winning the state contracts, a former Senate Democratic aide explained. “But what happens is… if you give birth in a hospital and ask for formula, you will get whatever formula is on whoever has the WIC contract,” which allows formula manufacturers to reach a massive group of new customers. Earning a state WIC contract can also mean more favorable shelf space at retailers across the state and increased brand loyalty.

Not everyone agrees on the degree to which single source sourcing has driven consolidation in the formula industry, compared to other factors, such as general consolidation across the food industry and high food safety regulatory costs, since infant formula is more regulated than most other foods.

“It’s hard to say how much of those changes are due to WIC policy,” said Charlotte Ambrozek, an economics researcher at the University of California, Davis who specializes in food assistance programs. Ambrozek said there really hasn’t been a lot of recent research that has focused specifically on the issue of contracting and how it affects non-WIC retail prices and other related issues.

But the USDA Economic Research Service found in 2011 that changing a state WIC contract gave the new manufacturer about a 74 percent increase in market share in the state. Most of it is the result of changing WIC participants, as they make up more than half of the market, but the rest is the result of more preferential treatment at the retail level.

“Increased visibility can increase sales among non-WIC consumers,” according to the Center on Budget and Policy Priorities. “This effect is important because a manufacturer receives about 20 times more revenue for each can of formula sold to a non-WIC consumer than for a can purchased through WIC.”

Hayes calls single-sourcing contracts, and the market advantages they bring, “a big problem that many Americans weren’t even aware of.” But he also says that addressing the contracts “would require a much bigger solution” than what Congress is currently proposing.

Part of the reason is that WIC is authorized under what’s known as the Child Nutrition Reauthorization, which Congress used to review every five years but hasn’t addressed in more than a decade as school meals and other issues in the bill became increasingly partisan. Both House and Senate leaders had said they wanted to address reauthorization this year, but that work stalled as Capitol Hill tried to move forward on Biden’s massive proposal. climate and social spending bill. After that imploded, the committees never picked up the issue again.

The WIC program itself has enjoyed mostly bipartisan support over the years, given the variety of families and regions it serves, and because it can improve children’s health outcomes while saving costs in the long run. . However, there have been efforts in recent years to update key parts of the WIC program, including revamping the staple foods that are included in the program, distributing more benefits using EBT cards, and potentially allowing WIC purchases at line. Infant formula contracting had been almost entirely absent from the policy conversation, until the shortages hit.

Brandon Lipps, a former USDA official in the Trump administration, helped lead WIC and other nutrition programs during the pandemic and economic fallout, when families especially relied on WIC for their children’s nutrition.

“WIC is an extremely critical program to ensure that all mothers and children have access to proper nutrition and really get a healthy start in life. I think people on both sides of the aisle recognize that,” Lipps said.

Lipps added that the current bipartisan bill provides needed and limited flexibility to future administrations facing crises like the current impeachment and shortages. He pointed out that there is no political or quick political solution to the problems related to the exclusive supply provisions of state contracts and said that “pointing fingers” in Congress is “distracting.”

“When you get off this bipartisan bill, you see a lot of movement in a lot of different directions,” Lipps said. “As legislators turn to talk about ways they can improve WIC, I think there’s plenty of time in the coming months for them to sit at the table together to deeply understand the issues and work on the opportunities as they go.” .

President of the Senate of Agriculture Debbie Stabenow (D-Mich.) leads the WIC companion bill in the Senate, where even the modest changes he proposes face a steeper ascent. Republicans in both the House and Senate have previously raised concerns about the use of waiver authorities similar to those the bill proposes to expand other nutrition programs during the pandemic, including the Supplemental Nutrition Assistance Program, known as the Supplemental Nutrition Assistance Program. like SNAP. However, a Senate Republican aide predicted the legislation would get the 10 Republican votes needed to pass.

Stabenow told POLITICO on Wednesday that there are nine Republicans co-sponsoring the Senate bill so far, including the Senate’s ranking member of Agriculture. John Boozman (R-Ark.) The committee has been looking at ways to increase competition in the infant formula space, but Stabenow cautioned against reversing single-state contracting because the setup saves taxpayer dollars overall.

Companies bid competitively for state contracts, Stabenow said. It’s not unlike how some lawmakers want the government to be able to negotiate drug prices for Medicare, essentially using large-scale purchasing power to get deep discounts.

“That’s important to WIC. We want to make sure we get the lowest prices possible for our moms and babies,” Stabenow said. “At the same time, we need more competition for contracts, more manufacturing, more resiliency.”

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