A recent report from a Congressional watchdog urges the government to reconsider its approach to purchasing infant formula in order to prevent future shortages.
The shortage of infant formula that began in 2022 left families across the nation struggling to find this essential product. The U.S. Government Accountability Office (GAO) conducted an investigation into the factors that contributed to the crisis and highlighted vulnerabilities in the market that need addressing.
In the early months of 2022, supply chain disruptions caused by the COVID-19 pandemic were the primary drivers of the shortage. However, the situation worsened when one of the country’s largest formula manufacturers, which supplies the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), recalled its products due to contamination concerns.
The crisis exposed the risks of a concentrated infant formula market, dominated by just a few large manufacturers. As concerns grew, lawmakers like Senators John Boozman (R-Ark.) and Deb Fischer (R-Neb.) called for an investigation, focusing particularly on how “sole-source” contracts in the WIC program affected formula availability.
The GAO found that nearly 40% of infants in the U.S. receive formula through federal food assistance programs, including WIC. The program awards exclusive contracts to manufacturers through a competitive bidding process. The winning bidder offers steep discounts, or “rebates,” which are often larger than wholesale prices.
While the GAO acknowledges that these rebates save taxpayers money, it also points out that relying on a single supplier can lead to supply chain vulnerabilities. With so few manufacturers in the market, disruptions at any one plant can have far-reaching effects.
A key factor is the “spillover effect,” where winning a WIC contract increases a manufacturer’s market share, even among non-WIC customers. According to the GAO, this effect can boost a supplier’s market share by as much as six times. In fiscal year 2023 alone, rebate savings amounted to $1.6 billion, benefiting an average of 1.3 million WIC participants each month.
To address these risks, the GAO proposes several alternatives. One option is to allow families to purchase any formula they choose, which would increase product variety and competition. However, the GAO notes that this would likely increase the program’s costs and reduce the number of families it could support due to the loss of manufacturer rebates.
Another suggestion is to partner with multiple manufacturers, rather than just one. This could reduce the risk of shortages and provide families with more choices. However, it may lead to higher costs for states and complicate the management of the program, while also reducing manufacturers’ ability to offer large discounts.
The GAO report calls for careful consideration of these options to balance cost, choice, and reliability in the future.
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