There is not enough baby formula in the United States. Shelves are bare across the country, with 43 percent of baby formula out of stock. That figure is even higher in Tennessee, Kansas, and Delaware – and, within states, in Metro areas like Las Vegas and Houston. On Ebay, a single can reportedly goes for over 100 USD; the stories of parents struggling, and in some cases failing, to feed their children are everywhere.
At the same time, it is also a story that can be fixed: At the tactical level by investing in policies that support, rather than discourage, supply, and at the strategic level by connecting the decision-making echelons of government to its regulatory architecture.
Less omnipresent is the story of what, precisely, led the US into this debacle – and how it could be avoided. This is a story of a headless governmental system, unable to grapple with the reality that actions have consequences and fixated on restriction over production. It’s a story that the US cannot afford to replicate, but that risks recurring across everything from basic food supplies to energy. At the same time, it is also a story that can be fixed: At the tactical level by investing in policies that support, rather than discourage, supply, and at the strategic level by connecting the decision-making echelons of government to its regulatory architecture.
Three big companies dominate the US baby formula market: Gerber holds approximately 13 percent of the market, Reckitt 38, and Abbott a whopping 42. In February, Abbott recalled a host of products and shut down a major production facility in Michigan – after FDA inspectors found traces of potentially deadly bacteria at the site (though not in products themselves). This shut down and recall compounded a pre-existing baby formula squeeze caused by pandemic-related supply chain shortages. Within two months, 40 percent of baby formula was out of stock, nationally.
This debacle can be attributed in part to a failure of the private sector; to a highly concentrated industry that has developed scale but not redundancy. That, however, is only a small part of the problem. The bigger failure here belongs to the government: The FDA inspection of Abbott’s plant took place in February. That granted Washington months to recognize that shutting down a core baby formula producer would lead to supply shortages and to take proactive measures in response; to ease red tape on imports, incentivize other companies to increase production, and build up stockpiles – in other words, to do everything that Washington is doing now, three months late, with the shortage already wreaking havoc.
That Washington didn’t do so is nobody’s fault. Rather, it is evidence of a structural flaw within the government system. The regulatory arm of the US government is preoccupied with restriction over production. It excels at stopping things, but not getting them going. And no mechanism connects stoppages to alarm bells that might alert the rest of the system to their implications; connects those implementing tactical regulations to the higher level, strategic echelons of government that might see a nation-wide baby formula shortage as a crisis to pre-empt.
This is what the US needs to fix. This is what policy in an era of shortage – and growing shortage – should orient around. Baby formula is the quandary of the moment. But it is just a harbinger of things to come. Thanks to Russia’s invasion of Ukraine and extreme weather trends, the world is on the brink of a large-scale food shortage. The same goes for energy: Oil and gas prices are skyrocketing with little end in sight while dependence on China for renewable energy inputs has effectively frozen development of those industries in the United States. The country cannot afford to wait for these crises to hit. The US needs to reposition to the left of shortage.
The failures of the baby formula case should provide a roadmap for how to do so. First, Washington needs to put its ear to the ground and recognize supply crises before they hit. This means connecting the immense regulatory architecture of the US government to the situation room: The FDA should have an alarm bell to ring before baby formula is stripped from the shelves; the United States Geological Survey an equivalent for critical mineral shortages. Some part of the government knows most of what’s happening in most places at most times. But that information is not connected or communicated – and especially not when it comes to anticipating crises. It might be impossible to turn the US government into an efficiently integrated organization. But it is not impossible to put a red phone into offices that need it.
Then, having established a basic early warning architecture, the US needs to develop permissive policies to respond: Relaxations of regulatory red tape, whether for production or on imports from trusted allies; incentives for development of new production, as through tax breaks and off-take agreements; and a clear line of messaging to communicate that these policies are here to stay.
The US is entering an era of industrial dislocation, and competition, not seen in decades. That demands a new relationship between government and production. This won’t be industrial policy as deployed by Europe or industrial control as weaponized by Beijing; both are anathema to the US system. Rather, the way for America to win in an era of shortage and a competition for supply chains is to recognize the hot spots – and then open the floodgates for industry to do its thing.