In The Face of Crisis, It’s Time For Formula Independence 

Jun 9, 2022

On Sunday, May 22, a military jet arrived in Indianapolis carrying 35 tons of baby formula from Switzerland. It placed an exclamation point on a crisis that is now weeks in the headlines, but decades in the making. The US baby formula shortage represents a collective failure of policy and industry. Fixing this failure will require a broad-based and long-term effort.

A common reaction is disbelief: how did America, the ultimate rescuer, become the rescued?  Even our nearby neighbors, Canada and Mexico, remain well supplied with formula. Examining the state of the US baby formula market, this crisis is not so surprising. Three companies - Abbott, Gerber, and Reckitt - produce nearly all of the formula made in the US. Abbott is the largest, with ~40% market share. The February closure of Abbott’s Sturgis, Michigan plant, due to possible bacterial contamination, has had a ripple effect that is just now peaking and should have been easily foreseen given the company's market dominance. 

Yet the problem goes beyond domination by a handful of companies. For good reason, baby formula is heavily regulated. Yet safety and nutrition are not always front and center - witness how long it took the FDA to act on an October 2021 whistleblower report about the Sturgis plant. Thanks to the powerful lobby that has sprung up around leading formula companies, high tariffs have helped to keep imported formula to about 2% of the US market, removing a potential short-term lifeline for struggling families. This is frustrating given that most European formulas meet FDA nutrition standards, and furthermore are subject to the EU’s ban on filler ingredients like corn syrup (because the efficacy standard for formula is simply weight gain, added sugars are rampant in baby formula). 

Another significant part of the equation, but vastly underreported, is the USDA’s Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), which provides free infant formula to low-income families. While this sounds benevolent in principle, WIC awards exclusive contracts at the state level to single manufacturers, in exchange for substantial rebates. According to a study from the Journal of Public Health Policy, from 2006-2015, a year following a change in contract, the new brand averaged a volume sales increase of 322%. State WIC contracts also allow manufacturers to market directly to the most vulnerable consumers. WIC accounts for over 50% of US baby formula sales overall - making these contracts extremely valuable to the suppliers. Furthermore, WIC sets the standard for “approved products” at a completely inefficient 12 oz cans - 1-2 days of formula for a growing infant.

The decision about what to feed our children should be made by parents, not driven by government contracts. WIC-eligible families should have the full breadth of options to choose from, allowing competition to drive down pricing based on demand. 

Image courtesy Reuters: https://www.reuters.com/markets/europe/shortage-persists-reckitt-tightens-grip-us-baby-formula-market-2022-05-27/

The Illusion of Choice

While the baby formula aisle is packed with various brands, many of them are made by the same manufacturers. Illustrated here: 

On May 19, the Senate passed a bill that would “make it possible in extenuating circumstances for the Department of Agriculture to waive certain requirements so that WIC participants can purchase whatever brand is available.” As a short-term fix, this is reasonable - but why did it come to this? Shouldn’t the existence of infants in need of formula be extenuating enough?

Following an agreement with the FDA, Abbott is reopening the Sturgis plant, and US formula supplies are predicted to return to normal in about ten weeks. However, this does nothing to address the underlying problems. Saner regulations will be essential, but with the cronyism implicit in the system that led us here, will not come easily. Parents on WIC should be allowed to pick their own formula, and thus allow competition to improve products and drive down price,  rather than having the government pick it for them. In the meantime, American companies need to invest in infrastructure that will build resilience to future disruptions, and provide families, especially those dependent on WIC, some measure of security.

ByHeart is one such company. Realizing how badly new product development lagged in infant nutrition research, ByHeart’s founders spent over five years conducting R&D, running clinical trials, building manufacturing capacity, and developing higher standards for their supply chain (which they directly oversee to ensure quality) before launching their first infant formula in March 2022 as the first new infant formula manufacturer to be registered with the FDA in over 15 years. In response to the recent shortage, ByHeart will increase production from 24 hours, 5 days a week to 24/7, while committing another $30 million to building more manufacturing capacity. I’m a proud investor, along with my firm, 8VC. And for the sake of families around the country, I hope ByHeart faces growing competition in the years ahead.

I am firmly cognizant that I now write from a place of privilege, but that wasn’t always the case. Growing up, access to milk was a constant source of anxiety for my mother, who was balancing raising my sister, a retail career and an addict husband.  Now, I’m the mother of twins for whom I’d do anything - yet for too many mothers, there is only so much they can do. 

Everywhere we look, we’re subjected to lofty talk and posturing about the importance of mothers to our society, and protecting those who can’t protect themselves. Over the past two years, mothers have been disproportionately affected by the pandemic – from attending sometimes harrowing doctors appointments without partners, giving birth in a mask (which I personally did) to balancing work and family while homebound, or working high-exposure jobs. The stress has simply continued to compound. In the face of this deeply regrettable - and preventable - crisis, our government and private sector have a responsibility to back their rhetoric with commitment, innovation, and action.