Challenges in Supply, Market Competition, and Regulation of Infant Formula in the United States (2024)
Chapter: 2 Methodology
Chapter 2
Methodology
This chapter provides the committee’s interpretation of its statement of task and approach to gathering and assessing relevant evidence to inform and support its findings, conclusions, and recommendations.
COMMITTEE’S INTERPRETATION OF THE TASK
The committee’s overall task (see Chapter 1, Box 1-1) was described in the Consolidated Appropriations Act of 2023 (P.L. 117-328, § 3401). The project’s sponsor, the Food and Drug Administration (FDA) provided additional topics for the committee to consider (see Chapter 1, Box 1-2), including characteristics of the infant formula market by types of formula, challenges such as tariffs and the sourcing of ingredients, and similarities and differences among infant formulas in the United States and countries both within and outside of the European Union. Based on the statement of task and conversations with FDA, the committee determined that certain related topics that are covered in depth by other committees were out of scope for this report (see Appendix E).
The committee interpreted the statement of task as a request to understand and describe the vulnerabilities in the current infant formula supply chain. In addition, the request was to use expert judgment to recommend measures to strengthen the supply chain, consider market competition, and promote the resiliency of the infant formula supply in the United States. The committee was motivated by the importance of nutrition in early life on child health outcomes (Schwarzenberg et al., 2018) and con-
sidered the entire supply chain beginning with manufacturing and ending with the acquisition of infant formula by parents and caregivers. The committee noted unique barriers to accessing infant formula for certain populations, such as people living in predominately Black communities (Blackman et al., 2022), participants in the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), and other low-income consumers.
COMMITTEE’S APPROACH
The committee approached its task by characterizing the infant formula regulatory framework and supply chain before the 2022 shortage and identifying changes in both government policies and the marketplace following the 2022 shortage. The committee interviewed a range of stakeholders who could describe and explain the regulatory structure of infant formula production and distribution before, during, and after the crisis. The stakeholders are described in more detail later in this chapter. The committee paid particular attention to the effects of the shortage on WIC participants, the actions that were taken to mitigate these effects, and the actions that are still needed to address these effects. The committee also assessed the vulnerability of the infant formula supply chain at the onset of the shortage and the policy and market responses to it, identified remaining vulnerabilities, and developed conclusions and recommendations regarding how to address them without causing adverse effects.
Committee’s Methods
To respond to the statement of task and additional topics of consideration, the committee held closed-session and public meetings to understand the challenges in supply, market concentration, and regulation of infant formula. The public sessions provided an opportunity for the committee to engage in dialog with invited stakeholders to gather information relative to the supply chain vulnerabilities (see Appendix C). The public meetings were available to the public to watch on the project website.1 The committee also gathered written information from additional stakeholders in response to the committee’s questions, reviewed federal documents and websites (e.g., FDA recall and education/guidance websites). All information supplied to the committee is available by request through the National Academies of Sciences, Engineering, and
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1 https://www.nationalacademies.org/our-work/challenges-in-supply-market-competition-and-regulation-of-infant-formula-in-the-united-states (accessed April 11, 2024).
Medicine (the National Academies) Public Access File.2 The committee also consulted the scientific literature for additional information.
During its deliberations, the committee developed diagrams to describe the supply chain for infant formula in the general marketplace and for WIC (see Chapter 4). The committee also developed a timeline to describe government responses to the shortage (see Chapter 5) using publicly available information and information provided by stakeholders. The committee further considered and adapted a vulnerability framework (see Figure 2-1) to guide its assessment and explanation of vulnerabilities in the infant formula supply chain (see Chapter 6). When assessing possible solutions, the committee also relied on the previously published National Academies framework for improving the resilience of medical product supply chains (NASEM, 2022).
Stakeholders Considered by the Committee
In its assessment of vulnerabilities to the infant formula supply chain, the committee considered five key types of stakeholders: consumers, government entities, manufacturers, distributors (including wholesalers), and vendors (retail and hospitals). Each of these stakeholders is described in more detail in the following subsections. The committee gathered relevant information (e.g., via public session, websites, written questions) on each stakeholder’s role in the supply chain before, during, and after the 2022 infant formula shortage.
Consumers
In this report, the committee refers to consumers as the caregivers of infants between 0 and 12 months of age that purchase infant formula. Consumers include, but are not limited to, parents or guardians with infants that are either exclusively or partially fed with infant formula, child care providers that provide infant formula to infants in their care, and health care providers that arrange feeding for infants during hospitalization.
Government Entities
In this report, the committee considered several government entities that play an ongoing role in the infant formula market and that could be involved during a shortage or another emergency (see Table 2-1). Govern-
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2 Public Access File available by request via the National Academies. https://www.nationalacademies.org/our-work/challenges-in-supply-market-competition-and-regulation-of-infant-formula-in-the-united-states (accessed April 11, 2024).
NOTE: Alternative nutrition sources include breast milk and other sources depending on age and medical condition.
SOURCE: Adapted from Wosińska et al. (2023) framework for prioritizing pharmaceutical supply chain interventions, Health Affairs Forefront, 2023, https://www.healthaffairs.org/content/forefront/framework-prioritizing-pharmaceutical-supply-chaininterventions Copyright © 2024 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.
ment entities that have a direct and ongoing role in the infant formula market include FDA and the Centers for Medicare & Medicaid Services (CMS)—which are both part of the U.S. Department of Health and Human Services, as well as the U.S. Department of Agriculture (USDA). FDA sets standards for infant formula ingredients and labeling and enforces manufacturing quality standards in infant formula facilities.
Medicaid is administered at the federal level by CMS and operated by state Medicaid agencies. Medicaid subsidizes the cost of infant formula for the limited group of low-income infants that require exempt infant formulas (7 CFR § 246.10(e)(3)(vi)). More information about exempt infant formula is provided in Chapter 3.
TABLE 2-1 Government Entities That Play a Role in the Infant Formula Market
| Government Entity | Agency | Role |
|---|---|---|
| White House | - | Coordination and trade policy |
| Congress | - | Enacts laws related to infant formula |
| U.S. Department of Health and Human Services | Food and Drug Administration | Regulates infant formula ingredients, manufacturing, and labeling |
| Centers for Medicare and Medicaid Services | Oversees Medicaid, which subsidizes exempt infant formula | |
| Centers for Disease Control and Prevention | Disease surveillance | |
| U.S. Department of Agriculture | Food and Nutrition Service | Oversees CACFP, SNAP, and WIC, which provides infant formula to participating low-income infants |
| Federal Trade Commission | - | Oversees marketing claims and investigates anti-competitive practices |
NOTE: CACFP = Child and Adult Care Food Program; SNAP = Supplemental Nutrition Assistance Program; WIC = Special Supplemental Nutrition Program for Women, Infants, and Children.
USDA administers and oversees WIC at the federal level, and state WIC agencies operate the program. WIC provides low-income women, infants, and children under age 5 who are at nutritional risk with information on healthy eating, breastfeeding support, referrals to health care, and nutritious foods to supplement their diets, including infant formula (FNS, 2024).3
Other government agencies also have a role to play during emergencies. Following the 2022 infant formula shortage, the Centers for Disease Control and Prevention coordinated case surveillance for the Cronobacter sakazakii outbreaks (CDC, 2022; FDA, 2022a); the Federal Trade Commission, which oversees advertising claims on an ongoing basis, examined any anticompetitive, unfair, or deceptive acts or practices that contributed to or exacerbated the infant formula shortage (FTC, 2024); and the White House coordinated the response and invoked the Fly Formula operation (White House, 2022). More information about the regulatory structure for infant formula prior to the 2022 shortage is described in Chapter 3, while Chapter 5 details the government policies that followed the shortage.
Infant Formula Manufacturers
In this report, the committee considered an infant formula manufacturer to be a company that produces infant formula. This definition includes manufacturers of finished infant formula products. The committee also considered that there are manufacturers of upstream supply chain products (e.g., ingredients for infant formula, precursors to those ingredients, and infant formula packaging). These were viewed as separate from infant formula manufacturers.
For finished infant formula product companies, the committee distinguished between the role of manufacturer and marketer. Infant formula marketers sell the FDA-registered product under the company’s brand. For instance, the two largest infant formula companies and two small companies in the United States are both manufacturers and marketers, while most smaller companies and store brands are only marketers, purchasing the finished product from a contract manufacturer.
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3 Each WIC applicant must be determined to be at nutritional risk based on a medical or nutrition assessment by a health care professional in order to be certified as a WIC participant (P.L. 101-147, § 123).
Distributors
As part of the downstream supply chain the committee considered distributors that move infant formula product from manufacturers to the point of sale (e.g., a store) or point of administration (e.g., a hospital).4
Vendors
The committee considered vendors, which for the purposes of this report, include retailers and other entities, such as hospitals, to be those entities that provide infant formula directly to consumers. Retailers include both brick-and-mortar retailers and online retailers. WIC participants redeem infant formula and other food benefits at a subset of these retailers, which are referred to as WIC-authorized vendors. Hospitals provide infant formula to some healthy term-born infants in the first few days of life and to sick or preterm infants.
Vulnerability Framework
To assess the vulnerability of the infant formula supply chain, the committee adapted a framework initially developed by Wosińska et al. (2023) to assess vulnerabilities in prescription drug supply chains (see Figure 2-1). This framework recognizes that shortages occur when supply chains cannot absorb shocks to the supply of—or demand for—the product. The framework differentiates among triggers, potentiators, and buffers, as described below.
Triggers
Triggers are events or actions that disrupt the supply of a key ingredient or infant formula. Infant formula demand is relatively stable in the short term, changing gradually over the long term with shifts in births or infant feeding practices. As such, supply shocks are the more likely trigger of potential shortages. The 2022 U.S. infant formula shortage began with manufacturing quality problems and food safety concerns at the Abbott plant in Sturgis, Michigan, leading to a recall and prolonged closure of that plant (FDA, 2022b). Flooding following heavy rains two weeks after
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4 For the purpose of this report, downstream refers to distribution channels for the final product (infant formula) once it leaves the manufacturer’s door.
the plant reopened led to power outages and flood damage, extending the time the Sturgis plant needed to be closed (Davis, 2022). Other potential supply chain disruptions include geopolitical factors or export policies that affect the availability of ingredients and ingredients or products that are discontinued as companies reassess relative profitability of specific products.
Even if the total number of infants using infant formula does not change dramatically in the short term, demand for particular infant formulas (e.g., hypoallergenic formula from Brand X and Y) can spike if the availability of substitute infant formulas (e.g., hypoallergenic formula from Brand Z) changes. For example, when Abbott’s Sturgis, Michigan plant shutdown disrupted production of powdered milk infant formula, demand for other types of infant formula increased. For this reason, assessing substitution patterns between products and the potential asymmetry between them is an important component of a vulnerability assessment.
A vulnerability assessment would also consider the likelihood of each type of shock and the consequences of each. For example, a manufacturing quality disruption could be shorter than an export restriction triggered by geopolitical dynamics.
Potentiators
Potentiators are factors that exacerbate the shock to the system, either by affecting the relative size of the shock or by further enlarging the shock.
The concentration of production in specific manufacturing facilities and perhaps also in specific regions exacerbates the relative size of the shock. For example, if an affected facility is responsible for 30 percent of all U.S. production, it is much more difficult to close the gap than if an affected facility accounts for 10 percent of production. Similarly, if the problems can be isolated to certain areas of a facility, the facility will be less affected than if the problem (e.g., bacterial contamination) requires a shutdown across the full facility.
Beyond the production share of individual lines and facilities, overlaps in supply chains can accentuate the effect. One such overlap can occur when facilities are colocated, creating vulnerability to natural disasters (e.g., Hurricane Maria affected operations of 50 drug manufacturing facilities in Puerto Rico) or geopolitical threats (Jarvis, 2018). Another such overlap occurs when common nodes exist in supply chains. For example, even if a product is manufactured in 10 different facilities, if half of them receive a specific ingredient from one source, that would exacerbate the potential effect of a supply disruption to that source.
Markets can be further concentrated on the local level. In particular, the structure of WIC’s competitive bidding process for providing infant
formula to participants concentrates contract-brand sales at the state level, with the WIC contract holder’s brand accounting for an average of 84 percent of the market share in that state (Oliveira et al., 2011).
Consumer patterns of formula use, whether through preference or necessity, can also exacerbate the effect of a supply chain disruption. For example, brand loyalty can exacerbate the effect of a disruption on consumers that have a strong preference for a specific brand. Disruptions are particularly problematic for infants who are not yet fed complementary food and affect both those who are partially breastfed as well as those who are exclusively formula-fed.
Finally, panic buying can further fuel a shortage. If there is greater uncertainty about the availability of a product, consumers want to hold a higher level of inventory than they otherwise would. For example, during the early days of the COVID-19 pandemic, some consumers stockpiled toilet paper at home, fearing they would run out. Such behavior increases demand beyond the historical purchase, exacerbating the gap between supply and demand.
Increasing breastfeeding initiation, intensity, and duration could also reduce demand for infant formula. Pérez-Escamilla et al. (2018, 2023) calculated that increasing rates of breastfeeding initiation and whole-of-society initiatives to reduce barriers to breastfeeding through 12 months of age, in line with recommendations from the American Academy of Pediatrics and the World Health Organization, could reduce the number of families who rely on infant formula or the degree of their dependence in the event of a shortage.
Buffers
Buffers are policies or practices that mitigate the effect of a supply disruption. If supply chains are resilient, they have buffers that allow them to withstand supply and demand shocks. Buffers can be broadly characterized as restoring infant formula availability and minimizing harm.
Examples of resiliency factors related to production include sufficient inventory at the time of the shock; ability to increase production on existing lines or convert additional lines to production of the product in demand; the ability to bring new product into the market by increasing production or imports; and the ability to redistribute available product to prevent or alleviate shortages.
Limiting harm also requires the consideration of alternative nutrition sources, which may differ across consumer segments. One differentiating dimension may be medical—some infants have special medical conditions such as kidney failure or metabolic conditions that limit their intake options. Another differentiating dimension may be timing—infants
already being fed complementary foods have more buffers than younger infants, or mothers can initiate breastfeeding at birth but not much later. Another dimension may be structural—only certain products are eligible for purchase using WIC benefits. These different dimensions may be more or less amenable to buffering.
Resilient supply chains have systems that are well coordinated, ready, and able to be turned on quickly (ASPR, n.d.; FEMA, 2023)—hallmarks of emergency preparedness. Such resiliency can alleviate the harm caused by any shocks to the system.
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CDC (Centers for Disease Control and Prevention). 2022. Cronobacter and powdered infant formula investigation. https://www.fda.gov/food/outbreaks-foodborne-illness/fda-investigation-cronobacter-infections-powdered-infant-formula-february-2022 (accessed April 11, 2024).
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