By Ryan McMaken*
For parents who depend on formula, whether by choice or medical necessity, the national formula shortage has become increasingly difficult to ignore. According to the wall street journalWalgreens, Target, CVS and Kroger have all started rationing formula supplies.
The Covid lockdowns, combined with a product recall by formula maker Abbott Nutrition, have created a very real shortage of a product that is essential for good nutrition in many children.
With the shortage came the usual half-baked bromides about “evil companies” and how infant formula companies are supposedly not regulated enough. Add in a few references to “late-stage capitalism” and you’ve got a good taste of the usual “blame capitalism” narrative that accompanies every episode of scarcity or price hikes.
The formula is heavily regulated and subsidized
In reality, federal government intervention in the infant formula market is widespread. Through the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), infant formula companies are heavily subsidized through voucher programs, which means the U.S. government is “provide[ing] more than half of the formula used in the United States.“
Under these voucher programs, funds are channeled to selected companies through programs that grant a formula to a company”the exclusive right to have its formula provided to WIC participants in the state.“In practice, this means that the biggest companies with the most lobbyists are able to dominate the subsidized part of the market. Since the subsidized part of the market is so huge, it usually means that these companies dominate the market as a whole. This makes it more difficult for new entrants to enter the market and offer real competition. This means that the market becomes dependent on a small number of large companies.
The anti-competitive nature of federal WIC policy is only one aspect of how little relationship the formula market has to what we might call “the free market”.
Protectionism prevents access to foreign formula
Another major and important factor is the restriction of foreign imports imposed by federal law.
Overall, the American diet is very protectionist when it comes to dairy products in general, and infant formula is certainly no exception. Like a pediatric medical journal categorically declare “Infant formula in the United States is highly regulated.” This is clearly seen in the protectionist trade law imposed on formulas under the guise of protecting consumers.
Like Derek Thompson at Atlantic note, Food and Drug Administration “regulation of formulas is so strict that most products coming out of Europe are illegal to buy here due to technicalities such as labeling requirements.”
These bureaucratic requirements fall under “non-tariff barriers”, which in many cases present even greater barriers than tariffs.
But tariff barriers are also important. Thompson also notes that
US policy also restricts the importation of preparations that Is meet FDA requirements. At high volumes, the import tax on preparations can exceed 17%. And under President Donald Trump, the United States entered into a new North American trade agreement which actively discourages imports of infant formula from our largest trading partner, Canada.
However, those products that jump through all those hoops face further away limitations. The FDA requires that even qualified formula manufacturers must wait ninety days before marketing any new formula.
Consequently, unsurprisingly, 98% of all infant formula consumed in the United States is produced domestically. Moreover, if that supply is ever threatened, as it has been due to lockdown-induced logistical issues and corporate recalls, American consumers have few other options.
Trade restrictions function to prevent reliable channels for importing foreign preparations. Thanks to this ninety-day time to market, foreign suppliers cannot introduce New products to market quickly either.
So if you’ve adopted kids, had a double mastectomy, or some other reason you need formula for your baby, you can thank the proponents of tariffs and other trade restrictions for the shortages.
Protectionists and their excuses
Naturally, infant formula protectionists have plenty of excuses as to why their favorite form of central planning and big government intervention in the marketplace is “necessary.” They will insist that FDA regulations are necessary to protect children, as if European infant formulas weren’t already heavily regulated. Infant mortality in Europe also tends to be lower than infant mortality in the United States, so the claim that protectionism is “for children” is clearly baseless.
These facts, however, do not stop Trump-style protectionists from claiming that government regulations are good.because China.”
Second, protectionists will likely argue that government control of formula – and all other dairy-based imports – is important because it “protects jobs.” What are protectionists really The saying is that you and your family simply have to go without essentials in order to protect a small number of companies that dominate the formula market thanks to US regulations.
Protectionism Means Punishing Entrepreneurs
Finally, there is little doubt that if the federal government really allowed a degree of freedom in the infant formula market, entrepreneurs would step in to import formula to meet demand quickly.
This, of course, cannot happen because these contractors do not want to be jailed, prosecuted, and otherwise destroyed by federal bureaucrats. After all, protectionism must be enforced by federal police and federal courts, and that means fining and jailing any importer who breaks the law. Protectionism is basically using violence against Americans who try to bring goods to market in ways that protectionists don’t like.
Once again, the anti-capitalist proponents of “fair trade” and proponents of WIC corporatism who caused these shortages are likely to walk away unscathed. Formula industry lobbyists will step out and ensure that nothing is done to jeopardize the benefits of protecting dominant companies. Welfare state leftists will ensure that the federal government continues to subsidize these companies as well. Right-wing protectionists will continue to insist that foreign assets must be kept out of the way to make America great.
In a way, this is all the fault of capitalism.
*About the Author: Ryan McMaken (@ryanmcmaken) is an editor at the Mises Institute. Send him your article submissions for the Wire updates and Power and marketbut read article guidelines first. Ryan holds a bachelor’s degree in economics and a master’s degree in public policy and international relations from the University of Colorado. He was a housing economist for the state of Colorado. He is the author of Cowboys Cocos: The Bourgeoisie and the Nation-State in the Western Genre.
Source: This article was published by the MISES Institute