(p. A15) The pandemic era has seen its share of supply-chain problems, but the infant-formula crisis—which began a year ago—stands out for its depth, duration and danger.
. . .
Politicians responded to the crisis with their standard pandemic playbook. They claimed decades of laissez-faire economics—free trade, deregulation, etc.—had left the U.S. formula market vulnerable to a major shock. Thus, the politicians argued, new government industrial policies and more regulatory enforcement were needed to resolve the current crisis and protect against future ones.
These refrains ignored the reality of the U.S. formula market and related federal policies, . . .
. . .
First, high and complicated “tariff rate quotas” dating back decades subjected most infant-formula imports to an effective tax of more than 25%; . . .
. . .
Two aspects of U.S. domestic policy added insult to this injury by effectively ensuring that a handful of large formula producers continue to dominate the market.
First, the U.S. regulates formula more strictly than any other food and more strictly than most other countries. Heavy regulatory burdens can discourage new market entrants, . . .
. . .
Second, the Special Supplemental Nutrition Assistance Program for Women, Infants, and Children, or WIC, which has grown to cover almost half of U.S. infant-formula sales each year, demands steep discounts from participating formula producers in exchange for sole access to a state’s WIC market and prime shelf space at participating retailers.
. . .
The combination of high trade barriers, onerous domestic regulations and restrictive government contracts has created a concentrated and sclerotic U.S. formula market that collapsed when a single factory shut down and still hasn’t fully recovered. Tellingly, the federal government’s emergency actions to alleviate the formula crisis targeted these very policies. Congress suspended baby-formula tariffs through the end of 2022. The FDA exercised its “enforcement discretion” to approve eight new foreign manufacturers to sell formula until 2025 without meeting all U.S. regulations. The Agriculture Department allowed WIC recipients to use their benefits to buy noncontract formula brands, including imports, until mid-2023. And President Biden’s Operation Fly Formula commissioned military aircraft to deliver formula from abroad.
In all cases, the federal government implicitly recognized how freer markets can boost economic resilience and how protectionism and excessive regulation undermine it. Yet Congress and the executive branch haven’t made these reforms permanent. Tariffs are now back in force, even as discrete shortages persist.
For the full commentary, see:
Scott Lincicome and Gabriella Beaumont-Smith. “The Infant-Formula Market Is Still Bottled Up.” The Wall Street Journal (Friday, Feb. 17, 2023): A15.
(Note: ellipses added.)
(Note: the online version of the commentary has the date February 16, 2023, and has the same title as the print version.)