Challenges in Supply, Market Competition, and Regulation of Infant Formula in the United States (2024)
Chapter: 6 Vulnerabilities and Recommendations
Chapter 6
Vulnerabilities and Recommendations
The 2022 infant formula shortage revealed numerous vulnerabilities in the supply chain along with difficulties in accessing infant formula. In responding to the statement of task, the committee prioritized the importance of learning from the shortage experience to understand the challenges in supply, market competition, and regulation of infant formula in the United States and steps to prevent or mitigate the effect of any shortage that could occur in the future.
This section of the report describes the vulnerabilities identified by examining the pre-shortage landscape, the 2022 infant formula shortage, and the response to it. In doing so, the committee recognized actions the Department of Health and Human Services (HHS) and Department of Agriculture (USDA) took under new authorities granted through the Food and Drug Omnibus Reform Act of 2022 (FDORA) and the Access to Baby Formula Act (ABFA), respectively. The committee acknowledges the progress made and provides recommendations for future actions and to fill identified gaps. The committee also provides recommendations for further research.
As discussed in Chapters 2 and 4, not every shock to a supply chain results in a shortage. Whether supply chains can withstand shocks depends, in part, on the size of the shock and the buffers that exist to absorb it. To the extent a supply chain disruption results in a shortage, response entails minimizing the adverse effects of the shortage while supporting expeditious recovery.
After assessing the infant formula landscape before, during, and in response to the infant formula shortage of 2022, the committee found vulnerabilities in the following five areas:
- Risk management planning: Risk management planning and implementation of such plans by the federal government and infant formula companies are key elements of a preparedness strategy for potential supply disruptions. The federal government, however, has not engaged in sector-wide risk management planning for infant formula. Likewise, manufacturers lacked (and perhaps still lack) risk management plans that enable a faster recovery from supply shocks and incentives to implement them. Lack of understanding the potential risks to the supply of infant formula and the investment needed to prevent or minimize shortages has the potential to contribute to future shortages.
- Market concentration: Infant formula sales are concentrated at the national and state levels, but concentration of production poses the greatest vulnerability to supply disruptions. Production disruptions at a single facility, which are more likely because some are outdated, can create significant supply disruptions relative to the size of the market.
- Ability to support speedy supply recovery: Restoration of production was slowed by certain aspects of the Food and Drug Administration’s (FDA’s) lack of authority for oversight of manufacturing, as well as regulatory requirements that inhibited rapid importation of infant formula.
- Government’s management of adverse effects on consumers: Adverse effects were heightened by inadequate communication with the public, unique constraints faced by the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) participants, and lack of coordination between government and industry.
- Protection, promotion, and support of breastfeeding: Structural barriers manifested through lack of access to qualified breastfeeding protection and support contribute to the dependence on an adequate supply of infant formula.
Each area will be described below, highlighting the committee’s findings, conclusions, recommendations, and implementation considerations related to each topic area. Under each vulnerability area, the committee’s findings are indented, and the committee’s conclusions are indented, numbered, and in italics. Each of the committee’s recommendations is indented, numbered, and in bold. For some vulnerability areas there are
subsections; however, not all subsections have recommendations, and not all recommendations have implementation considerations. The chapter concludes with areas of needed research identified by the committee. Each recommendation organized by stakeholder can be found in Appendix K.
RISK MANAGEMENT PLANNING
Risk management planning and the implementation of such plans are key elements of a preparedness strategy for potential supply disruptions. Proper risk management needs to be conducted by the federal government and infant formula companies on the sector level, firm level, facility level, and product level. The 2022 infant formula shortage highlighted an inadequacy of risk management preparedness and response on multiple levels by both FDA and manufacturers.
The committee found that FDA lacked a sector-wide assessment of vulnerabilities in the infant formula supply chain, as well as preparedness plans for what actions it would take should supply disruptions occur. While the committee did not have enough information to discern whether inadequate manufacturer preparedness was a result of inadequacy of plans or insufficient implementation of existing plans, it is likely that both factors played a role. Congress responded to the inadequacy of manufacturers’ risk management preparedness by requiring, under FDORA, that critical foods facilities, including infant formula facilities, develop redundancy risk management plans (RRMPs),1 subject to inspection by FDA under its authority to inspect production facilities. Specifications for such RRMPs would typically be explained in guidance, and inspections would allow for a review of the plan and a physical inspection of whether the plan is being implemented at the facility, with inspections occurring annually after the completion of a new infant formula notification. Although FDA has developed a one-page description of RRMPs for manufacturers of critical foods, it is unclear whether it plans to provide additional guidance, review the RRMPs, or monitor implementation, which call into question whether the plans would have the desired effect. Regulations are needed to establish evidence-based standards for RRMPs and a process for promoting compliance.
The committee found that under the Food Safety Modernization Act (FSMA), FDA has the authority to promulgate regulations establishing evidence-based standards and a review process for RRMPs as a compo-
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1 As defined by FDA using language from the U.S. Code “a redundancy risk management plan identifies and evaluates risks to the supply of the food, as applicable, for each establishment in which such food is manufactured” and “may identify mechanisms by which the manufacturer would mitigate the impacts of a supply disruption.”
nent of required written food safety plans. When promulgating regulations, FDA would be required to include a regulatory impact analysis, considering the downstream effects of the regulation, including the cost, which would help set reasonable expectations for RRMPs. If risk mitigation plans are costly for firms to implement, firms may not implement those plans unless they are funded or incentivized to do so. Because WIC provides more than half of the infant formula consumed in the United States, companies holding a WIC contract have a heightened responsibility to adequately prevent infant formula supply disruptions and speedily mitigate the effect of disruptions that do occur. Likewise, the federal government has a heightened role to play in overseeing and incentivizing WIC contract holders’ planning and implementation of resiliency measures.
Conclusion 1: The committee concluded that sector-wide resiliency planning is needed to reduce the likelihood that a supply chain disruption is triggered and to adequately buffer such a disruption. FDA’s existing information from new product registration, combined with new information on discontinuations collected using FDA’s authorities under FDORA, will be important to carry out sector-wide resiliency planning. Requiring infant formula manufacturers to develop RRMPs is a critical first step in preparing for supply disruptions. Evidence-based regulatory standards that reflect the risk management profile of the facility and the individual product’s supply chain are needed to support the development of plans that would adequately prevent or contain disruptions.
Conclusion 2: The committee concluded that FDA could use its authority under FSMA to implement RRMPs through regulation, which would also allow FDA to have access to a manufacturer’s RRMPs at its request, rather than only during inspections. Even robust evidence-based RRMP standards will only be effective if there are consequences for not implementing the plans. Because WIC provides more than half of the infant formula consumed in the United States, it is necessary for WIC contract holders to develop and implement RRMPs that meet FDA expectations.
Recommendation 1: The U.S. Department of Health and Human Services and the Food and Drug Administration, including the Office of Critical Foods, should conduct sector-wide risk management planning.
Implementation Considerations:
When conducting sector-wide risk management planning, FDA could consult the Administration for Strategic Preparedness and Response (ASPR) and the Federal Emergency Management Agency (FEMA), which
have preparedness plans for related, but distinct, risk management scenarios. FDA could also work with the HHS supply chain coordinator and other federal agencies that inform supply chain vulnerabilities (e.g., Centers for Disease Control and Prevention [CDC], Department of State) or potential solutions to risk scenarios (e.g., USDA, Office of the United States Trade Representative [USTR], Centers for Medicare and Medicaid Services [CMS]).
As part of the risk assessment, it would be important to also consider the vulnerability of upstream supply chains and how each vulnerability could be addressed.2 The results of these risk assessments could be used to develop standards for RRMPs. The results could also be used to inform future iterations of RRMPs. It will be important for FDA to review all manufacturers’ RRMPs to assess adequacy across the infant formula sector, identify gaps, and catalog any additional policies that could be used to address shortages, such as enforcement discretion or suspension of tariffs.
As a component of sector-wide preparedness efforts, it will be important for FDA to address not only what companies should do when a supply or demand shock to supply chains occurs, but also how to minimize the likelihood and magnitude of potential shocks. As recommended below (under research recommendations), FDA and USDA could also develop an estimate of potential costs of preparedness and mitigation by modeling scenarios that could lead to infant formula shortages, at varying levels of severity and duration, including separate estimates for WIC costs associated with a shortage caused by factors other than a recall. FDA could use information gathered from its annual inspection, environmental monitoring, and the RRMP to determine how to improve inspections to minimize or prevent the impact of potential triggers.
Recommendation 2: The Food and Drug Administration (FDA) should develop evidence-based redundancy risk management plan (RRMP) regulatory standards, a process for reviewing RRMPs, and a mechanism for monitoring implementation of the RRMPs. The committee proposes two options to accomplish this recommendation:
- Legislative option: Congress should amend the Infant Formula Act to require all manufacturers to submit RRMPs for each product, while recognizing capacity constraints, and direct FDA to promulgate regulations specifying evidence-based regulatory requirements for RRMPs and an RRMP review process to provide feedback on compliance with the evidence-based standards.
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2 “Upstream” refers to the ingredients, packaging, and other materials used in the manufacturing of infant formula.
- Administrative option: FDA should use its authority under the Food Safety Modernization Act to promulgate regulations that require RRMPs for critical food facilities as part of their required food safety plans and establish evidence-based standards and a review process for RRMPs.
Implementation Considerations:
RRMP’s regulatory standards, review, and monitoring are important for preparedness and resiliency. Risk-mitigation strategies to consider include:
- alternative production lines or sites;
- alternative suppliers and production sites;
- stockpiling of inventory of relevant inputs and finished goods, as appropriate;
- isolating individual production lines within a facility to contain contamination;
- hardening of infrastructure if risks of natural disasters exist; or
- creating surge production capacity.
Regulatory requirements for RRMP’s should be informed by plans used by other industries where critical infrastructure must be protected. As such, the Office of Critical Foods could consult the HHS supply chain coordinator and other federal agencies with experience in protecting critical infrastructure (e.g., FEMA, ASPR, U.S. Department of Defense (DoD), Department of Energy). The Office of Critical Foods could use insight from other industries regarding criticality of specific facilities in a market (e.g., too-big-to-fail banks described in Chapter 4) and differentiating the expectations by the criticality of specific facilities because of their size relative to the market. The committee encourages FDA to phase in the standards and establish a reasonable timeline for developing a compliant RRMP and then implementing it. The committee also encourages working with companies to develop sound RRMP requirements before regulations are finalized.
It is important to note that FDA will likely need additional resources to carry out its review of RRMPs and the additional work required to provide feedback and technical assistance to infant formula manufacturers on their RRMPs.
Legislative Option Implementation Considerations:
The amended Infant Formula Act would require (1) new infant formula notifications to include an RRMP so FDA’s “no question” letter3 would include review of these plans; and (2) manufacturers of existing products to submit their RRMPs to FDA and work with FDA until they receive a “no question” letter on their plan (or risk receiving a warning letter). The legislation would direct FDA to promulgate regulations specifying appropriate characteristics of RRMPs from a product-level perspective, including relevant considerations of facility-level risks and recognizing that some risk management aspects may be related to specific lines (e.g., liquid line) or even specific products (e.g., supplies).
The legislative option is preferred as this portion of the legislation needs to be clarified. In the absence of legislation, at a minimum, FDA could use its authorities in FSMA to begin to achieve this.
Administrative Option Implementation Considerations:
Under FSMA, regulations apply to facilities, with a straightforward application to facility-specific risks (e.g., natural disasters, complexity of production process across lines, feasibility of isolating individual production lines within a facility to contain contamination). Considering how to incorporate firm-level risks (when a firm has multiple facilities) and product-specific risks (e.g., availability of inputs, small batch sizes) into facility-level regulations is critical. FDA would verify the implementation through inspection of facilities and review of firm-level policies.
Because regulations can take years to develop, to support implementation and avoid unintended consequences, the committee encourages FDA to work with companies to develop sound RRMPs before regulations are finalized. The committee’s considerations have focused on developing regulations; however, if FDA is unable to promulgate regulations, guidance from FDA would be important to indicate how it would interpret certain ambiguous aspects of FDORA’s requirement that critical food facilities develop RRMPs and should include FDA’s recommendations on the important elements of RRMPs.
Recommendation 3: The U.S. Department of Agriculture should promulgate regulations requiring an infant formula manufacturer to meet the Food and Drug Administration’s expectations with regard to evidence-based redundancy risk management
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3 A “no question” letter is an acknowledgment from FDA indicating that the agency has no further questions about a submission, in this context the new infant formula notification.
plan standards to be considered a “responsive” bidder under 7 C.F.R. § 246.16a(c)(5).
Implementation Considerations:
Upon request of an infant formula company, FDA would review the RRMP to assess whether it meets the evidence-based standards, provide feedback on the plan, notify the company of gaps in its plan and when they have been sufficiently addressed, and then verify implementation through an inspection.
Because implementing a more robust RRMP may have additional costs for the manufacturers, bidders could reduce the discounts they offer (in the form of rebates) to WIC, which would drive up the federal cost for serving WIC recipients. Because the number of people WIC can serve is limited by the amount of federal funding provided through the annual appropriations process, an increase in infant formula costs to the program could result in eligible people being turned away. To avoid this outcome, and to prevent WIC from bearing the entire cost of increased resiliency that would benefit all consumers, it would be important to pair a requirement for WIC bidders to have RRMPs that comply with regulatory standards with tax credits or other financial incentives for companies that invest in resiliency measures to strengthen their RRMPs.
There is also a risk that one or more bidders would not meet FDA expectations with regard to evidence-based RRMP standards, possibly leaving no bidders on WIC contracts or only one. This would pose a serious risk to WIC. It could result in a sharp increase in the federal cost of providing infant formula to WIC participants. A sole remaining bidder also might not be able to produce enough formula to bid on additional contracts. To mitigate these risks, it is critical that the evidence-based RRMP standards are developed in consultation with companies and phased in on a reasonable timeline. It is also critical for this recommendation to be implemented in conjunction with proposals that emerge from the area for further research (described below), related to developing proposals to aid expansion of infant formula companies that are almost within reach of qualifying as a “responsive bidder” and revising WIC’s competitive bidding requirements to allow bids by a company that does not sell all three physical forms of infant formula.
CONCENTRATION OF PRODUCTION AND SALES
The committee identified concentration of production and sales to be a vulnerability. This section describes the committee’s findings, conclusions, and recommendations related to sales concentration at the national and state levels as well as production capacity serving the national market.
Sales Concentration at the National Level
The committee found that, in the United States, sales shares of individual infant formula companies are concentrated, with the top three firms accounting for a total of 88 percent of the market in 2021 and 84 percent in 2022. This level of concentration has persisted in the United States since at least 1987, prior to the 1989 implementation of WIC’s competitive bidding process for procuring infant formula. The level of sales concentration also appears consistent with the level in other Organisation for Economic Co-operation and Development (OECD) economies. This level of concentration is also consistent with a late stage of the life cycle of manufacturing industries, characterized by consolidation not only at the industry level but also in the location of production capacity.
The committee found that typically only the dominant firms in the U.S. market participate in WIC’s competitive bidding process. It is possible that the requirements to provide multiple forms of infant formula (e.g., powder, liquid concentrate, and ready-to-feed) may serve as a barrier to bid on WIC contracts for other companies, limiting their ability to grow. It is also possible that economies of scale give dominant manufacturers an advantage and make it challenging for smaller players to offer comparable rebates. Nonetheless, it is unclear whether the smaller players would increase their scale relative to the dominant firms in the absence of WIC bidding, given the concentrated oligopolistic structure of the industry at the national and global levels and the fact that historical estimates of market concentration suggest that concentration was likely even more pronounced before the inception of WIC competitive bidding.
The committee found that while plausible in theory, there is no compelling evidence indicating whether tariffs on infant formula contribute to concentration in sales shares by preventing firms in other countries from serving the U.S. market, or whether tariffs on ingredients used in infant formula prevent entry or expansion of newer domestic firms. However, manufacturers indicated that the current criteria for quality factors serve as barriers to entry by domestic and foreign firms. A National Academies committee has been appointed to review these approaches to quality assessment.
Conclusion 3: The committee concluded that WIC’s competitive bidding process is not a driver of industry concentration at the national level, based on historical U.S. data. Additionally, industry concentration in the U.S. market is comparable to that in other developed countries and consistent with a late-stage industry life cycle. It is unclear whether trade policy acts as a barrier to entry into the U.S. market by either domestic or overseas producers.
Production Capacity Serving the National Market
The committee found that concentration of production capacity directly affects the relative size of a shock to U.S. production. If production for a given form of infant formula (e.g., milk-based power or ready-to-feed) is concentrated in specific facilities or to specific lines, a disruption to those facilities or lines significantly affects the supply of infant formula to the U.S. market, as the United States experienced during the 2022 shortage. Production concentration is not directly linked to brand concentration, and the two dominant infant formula companies have a handful of production facilities in the United States (see Chapter 4, Table 4-2). In turn, private-label and independent brands contract with Perrigo (private-label infant formula manufacturer) to manufacture their products. Production for the U.S. market is domestic, with less than 1 percent of infant formula being imported, meaning that U.S. companies do not appear to use their overseas facilities to diversify production infrastructure for the U.S. market. It is possible that tariffs make using facilities overseas less attractive to manufacturers that are already selling in the U.S. market.
The committee found that for a given product type, production may be further concentrated because of economies of scale. Although the committee was not able to assess the concentration of production in specific facilities, there is corroborating evidence that economies of scale exist owing to the capital-intensive nature of production, the prevalence of research and development, and the large size of plants. The nature of the manufacturing process in these settings also suggests that switching between some products, especially between non-exempt and exempt (i.e., hypoallergenic or metabolic products), requires downtime, increasing average variable costs of production.
The committee found that even when plants may have multiple production lines, technological constraints mean that some facilities or individual lines within facilities are not flexible to switch production between different products. For example, a liquid infant formula cannot be produced on lines making powder and vice versa. This specialization not only affects concentration but also limits the ability to ramp up production of specific products. Plant design can also amplify or limit the scope of disruptions, especially when it relates to contamination. In particular, the open design typical of older facilities may expose multiple production lines to contamination, making it more difficult to contain the problem.
The committee found that in other contexts, federal policy makers have aided investments to either build or improve manufacturing infrastructure, through either grants or other forms of subsidies. The rationale in those interventions, even if they apply to profitable industries, is that
social benefits to supply chain reliability exceed private benefits, requiring government intervention to close the gap.
Conclusion 4: The committee concluded that the relevant concentration measure for supply chain reliability is concentration of production capacity, not the number of companies marketing products or the sales concentration of those companies. Despite duplicate facilities among dominant companies, infant formula production capacity in the United States is likely concentrated, meaning the relative share of product volume coming from a specific facility or even line may be large relative to the U.S. market for that product. This concentration potentiates or enhances the potential for a shortage, requiring larger buffering strategies.
Recommendation 4: Congress should provide suitable incentives (e.g., offering tax credits, accelerated depreciation) to encourage all Food and Drug Administration (FDA)-registered infant formula manufacturers that have met FDA expectations with regard to evidence-based redundancy risk management plan (RRMP) standards to implement the RRMP and modernize manufacturing plants and equipment located in the United States. This modernization should include measures to prevent the spread of possible contaminants from one area of a facility to another, thereby ensuring product safety and minimizing the size and scope of a plant shutdown following the identification of contamination.
Sales Concentration at the State Level
The committee found that unlike on the national level, WIC’s competitive bidding process strongly influences sales concentration on the state level. One reason is that WIC offers winner-take-all contracts to obtain large discounts. WIC participants, in turn, must use their benefits to redeem the winning bidder’s brand of non-exempt infant formulas in specific forms and container sizes. Additionally, studies have consistently found that holding the state WIC contract substantially increases market share among non-WIC consumers as well. Other brands are thus less available to buffer a shortage of the WIC contract brand, and states are unevenly affected by disruptions, as occurred in 2022. Policy makers have proposed replacing WIC’s single-source contracting approach with multi-source contracting. This approach was tried in the 1980s and resulted in considerably higher infant formula costs to WIC.
The committee found that a switch to multi-source bidding would have other consequences for WIC. In the absence of WIC’s competitive
bidding process, but with the WIC subsidy intact, WIC participants would continue to be price insensitive, likely leading manufacturers to increase wholesale prices. Another consequence is that infant formula companies would have an increased incentive to directly market their brands to WIC participants, potentially lowering breastfeeding rates and the buffering effect of breastfeeding when there is a supply disruption.
The committee found that policy changes to increase the number of bidders, rather than change or eliminate competitive bidding, might lead to fewer unintended consequences. Bidders on WIC infant formula contracts are required to provide milk-based infant formula in powder, liquid concentrate, and ready-to-feed forms. One smaller infant formula company told the committee that the requirement to provide multiple forms of infant formula prevented them from being able to bid on WIC contracts. Allowing bidders to subcontract with another manufacturer for these forms of infant formula is not equivalent to multi-source contracting and is less likely to result in adverse effects on rebates and marketing.
The committee also found that the landscape for WIC bidding is changing, and it is unclear yet whether the changes will affect the level of rebates offered and the number of companies that bid. The ABFA requires new WIC infant formula contracts to include provisions to protect WIC participants’ access to infant formula in the event of a recall-related shortage, which could increase the contract holder’s costs during a recall. Nestlé exited the U.S. infant formula market in 2022, and since then only two companies have bid on WIC infant formula contracts. Several companies that manufacture infant formula abroad were granted enforcement discretion during the 2022 shortage to market infant formula in the United States and are now going through FDA’s process to become authorized on an ongoing basis. Once registered, these companies could bid on WIC contracts.
The committee also found that as market observers and academics assess the changes in the market, it is important to distinguish between the effect of competitive bidding on wholesale prices, which are set by manufacturers and would likely increase in the absence of competitive bidding, and retail prices, which are set by retailers. Studies have found that retail prices are higher for WIC contract infant formulas than other infant formulas, likely reflecting the role that the subsidy plays in retailers’ pricing decisions.
Conclusion 5: The committee concluded that eliminating WIC’s competitive bidding process for infant formula or replacing it with multi-source contracting while maintaining a subsidy to WIC participants would likely (1) lead to higher wholesale prices, and ultimately, higher retail prices for infant formula for all consumers; (2) lead to lower rebate bids, which would
substantially increase the federal cost of WIC without any guarantee that the program would continue to receive enough funding to serve all eligible families that seek to participate; and (3) increase the incentive for manufacturers to market infant formula to WIC participants, which could reduce breastfeeding, increase health risks, and potentiate future disruption to the infant formula supply.
Conclusion 6: The committee concluded that the requirement for the WIC contract holder to provide three physical forms of infant formulas may prevent some smaller companies from bidding on WIC infant formula contracts. In contrast to multi-source bidding, allowing bidders to subcontract for infant formula in these forms would likely not lead to decreased rebates or increase in marketing. Nonetheless, changes to facilitate bidding on single-supplier WIC contracts by smaller companies, newer companies, and companies that manufacture infant formula abroad would be premature because the sector has not yet adjusted to recent changes that could affect the number of bidders. Currently, the best way to protect consumers from the effects of a disruption to the dominant state brand is through building on the WIC contract remedies required under the ABFA.
Conclusion 7: The committee concluded that additional academic research to confirm the consensus that emerged in earlier studies on the effects of WIC’s competitive bidding process on the U.S. market for infant formula could be helpful as long as it does two things: (1) differentiates between effects on wholesale prices and retail prices; and (2) quantifies the effects of alternative bidding or procurement methods on incentives to engage in marketing, including potential effects on breastfeeding rates.
Recommendation 5: The U.S. Department of Agriculture (USDA) should extend some of the required infant formula contract remedies to emergency periods or supply chain disruptions precipitated by factors other than a recall and facilitate infant formula distribution to vendors authorized by the Special Supplemental Nutrition Program for Women, Infant, and Children (WIC) during disruptions to protect consumers from the effects of a disruption to the WIC contract-holder’s supply.
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USDA should revise 7 C.F.R. § 246.16a(n) to require that during all emergency periods and supply chain disruptions,
- contracts permit the issuance, without medical documentation, of infant formula in container sizes, physical forms, and brands that are not usually permitted; and
- the contract holder provides the state WIC agency with action plans that include supply data.
- USDA should provide states with template contract language and guidance to facilitate implementation of all the contract remedies in 7 C.F.R. § 246.16a(n).
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USDA should revise 7 C.F.R. § 246.16a(n) to require WIC infant formula contracts to specify that the contract holder will
- distribute infant formula based proportionally on past allocations during an emergency period or supply chain disruption; and
- modify its distribution contracts to require infant formula to be distributed based proportionally on past allocations during an emergency period or supply chain disruption.
- USDA should update 7 C.F.R. § 246.12(g)(9) and § 246.12(h) (3)(xvi) to require WIC-authorized vendors to provide a list of infant formula wholesalers and distributors that they use, upon authorization and upon subsequent request by USDA or the state WIC agency.
SPEEDY SUPPLY RECOVERY
The ability to respond quickly to a shortage is important, regardless of the cause. While actions were taken in response to the 2022 infant formula shortage, further preparation could help to increase the speed of response to future shortages.
Cronobacter sakazakii Genotyping
The committee found that limited testing for Cronobacter sakazakii in production sites, lack of adequate reporting of Cronobacter sakazakii infections, and limited genotyping of strains in communities and in production sites, can precipitate unnecessary plant shutdowns and disruptions to the market. Genetic variations in Cronobacter sakazakii create a challenge for traceback of infections in the community to contamination in factories without whole-genome sequencing and the uploading of the data to a public data bank, such as through PulseNet, a national laboratory network coordinated by CDC, or the GenomeTrakr Network databases at the National Center for Biotechnology Information. A recent letter from FDA to the food industry provides additional guidance,4
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4 https://www.fda.gov/media/166044/download (accessed April 22, 2024).
including recommending environmental monitoring of manufacturing facilities that includes testing specifically for Cronobacter sakazakii (rather than relying on proxies), whole-genome sequencing, and storage of the data in a public database. Based on a recommendation from the Council of State and Territorial Epidemiologists, on June 2023, CDC also made the infections in the community nationally reportable by states, as is already the case for Salmonella, Listeria, and other pathogens. However, CDC can only encourage reporting of infections in the community for genotyping as states’ participation is still voluntary and not tied as a condition for any type of federal funding.
Conclusion 8: The committee concluded that reporting Cronobacter sakazakii outbreaks, infections, and genotypes to CDC, as well as manufacturers complying with FDA’s recommendation to vigorously employ environmental monitoring, testing for and genotyping of Cronobacter sakazakii when present, and uploading the information to a public data bank are important to quickly and appropriately respond to future outbreaks.
Conclusion 9: The committee concluded that having a database with a combination of genomic information regarding infections in the community and contamination within factories, which would require funding to maintain, could strengthen the ability to link an outbreak to its true source and guide corrective actions.
Advance Notification of Permanent Discontinuance
The committee found that FDORA improperly grouped permanent discontinuation with interruption for purposes of notifying FDA about a potential meaningful disruption in the supply of the food. After the ABFA, WIC contracts should contain information on remedies to future shortages; for example, some 2022 WIC contracts require manufacturers to provide 120 days’ notice to the state for discontinuation of a contract-brand infant formula. However, such clauses are not standard across all state contracts, which may result in disparities across states in their response to potential disruptions caused by discontinuance.
Conclusion 10: The committee concluded that lack of advanced notice about an interruption or discontinuation that is likely to lead to a meaningful disruption could result in a preventable shortage, when such interruption or discontinuation is a business decision that a manufacturer knows about in advance.
Recommendation 6: Congress should amend the Federal Food, Drug, and Cosmetic Act to require manufacturers of critical foods to give sufficient advanced notice to the Food and Drug Administration when they decide to discontinue a critical food that is likely to lead to a meaningful disruption prior to removing the product from the market temporarily or permanently.
Implementation Considerations:
FDA will need to determine the minimum amount of time before discontinuance that it will need to be notified to mitigate the possible adverse effects of a resulting disruption on access to infant formula and provide this information to Congress to inform its amendment to the FDCA. FDA could take into consideration state WIC contracts’ notice requirements when determining what constitutes sufficient advanced notice.
Access to Records
The committee found that FDA did not have remote access to records during the COVID-19 public health emergency when physical access to manufacturing facilities was limited. The designation of infant formula and medical foods as critical foods has enabled the creation of specific requirements to facilitate the oversight and regulation of these foods and to mitigate the effect of any future shortage. To maintain adequate oversight of these critical foods and speed resolution of problems during a shock, FDA authority for remote access to records would be an important additional authority, in addition to the physical inspections that are specified in FDORA.
Conclusion 11: The committee concluded that authority for additional tools for remote access to records can strengthen efforts for both ongoing oversight of critical foods and managing the safety and quality of these foods during a crisis.
Recommendation 7: Congress should grant the Food and Drug Administration the authority for remote access of records for critical foods.
Barriers to the Importation of Infant Formula
The committee found that tariffs on imports of the final infant formula product from most countries are high and rise even higher once their total volume reaches a certain level (called a quota). Although suspension of
tariffs on infant formula in late July 2022 and on a key input into infant formula in October 2022 by Congress was helpful in mitigating the effects of the shortage, these policy changes took time, and widespread shortages had already begun by May.
The committee found that additional barriers to importing infant formula exist, such as FDA regulatory requirements. During the shortage, FDA determined that some infant formula regulations could be temporarily relaxed through enforcement discretion without compromising safety. Rules also restrict which U.S. businesses are eligible to import infant formula in a way that can prevent some retailers from buying additional stocks from abroad during a shortage.
Conclusion 12: The committee concluded that understanding barriers to entry during non-shortage times will provide information on what actions are needed during any type of shortage.
Conclusion 13: The committee concluded that clear and timely enforcement discretion is important in managing a domestic shortage. This requires FDA to remain aware of requirements in other countries that do not violate the intent of our regulations in order to maintain the safety and quality of U.S. infant formula in the event of another shortage.
Conclusion 14: The committee also concluded that suspending tariffs was helpful for bringing product into the United States during the shortage, but such action should have happened more quickly.
Recommendation 8: The Food and Drug Administration (FDA) should collect information on nutrient and labeling requirements used by other countries and use this information to develop a database to be updated every 4 years, consistent with the Food and Drug Omnibus Reform Act of 2022, of the requirements in other countries to facilitate the use of enforcement discretion in case of a shortage. In addition, the information in the database can be used by FDA to evaluate evidence to determine if an update is needed to U.S. regulations.
Implementation Considerations:
FDA could also consider collecting information on other items, such as emulsifier and contaminants and how the regulations on these differ across countries. In the event of a future need for enforcement discretion, the database could be helpful in development of guidance for consumers and health care providers on the use of these products as substitutes.
Recommendation 9: Congress should establish a trigger rule to suspend tariffs and tariff-rate quotas automatically on imported infant formula and imported inputs used in the domestic production of infant formula in the event of a meaningful disruption to the market, as defined by the U.S. Department of Health and Human Services.
Distribution
The committee found that some hospitals and WIC retailers experienced uneven supply of infant formula because of opaque distribution by distributors and/or wholesalers. USDA Food and Nutrition Service (FNS), state WIC agencies, and the White House have all indicated that communication channels with manufacturers opened quickly, but communications with distributors and wholesalers either did not occur or occurred too late. Distributors sometimes serve WIC vendors across multiple states and did not always spread supply evenly across regions.
Conclusion 15: The committee concluded that government officials tasked with monitoring supply conditions did not seem immediately aware that distributors are important points of contact for information about flow of product. The government also was unable to obtain information about where infant formula was in the supply chain, which hindered its ability to adequately coordinate a whole-of-government response.
Recommendation 10: The U.S. Department of Health and Human Services (HHS), including the HHS Supply Chain Coordinator and the Food and Drug Administration, should work with the appropriate wholesalers and distributors of infant formula to develop risk management and disaster plans to prepare for a shortage of critical foods.
GOVERNMENT’S MANAGEMENT OF ADVERSE CONSUMER IMPACT
This section describes the committee’s findings, conclusions, and recommendations related to adverse consumer impact of all consumers, WIC participants, consumers of exempt infant formula, as well as related to the promotion, protection, and support of breastfeeding.
All Consumers
The committee found that, during the 2022 shortage, caregivers lacked an understanding about how to handle and prepare powdered
infant formula safely. Caregivers also needed information on suitable substitutions and what to do if no infant formula was available, and not just harmful actions to avoid. Health care providers were also underprepared during the 2022 shortage to provide evidence-based guidance regarding safe preparation of infant formula and selection of the closest comparable alternative product. FDORA now requires FDA to provide information on its website on appropriate substitutes for infant formula products in shortage for infants with inborn errors of metabolism or other serious health conditions but does not address other types of infant formula.
Conclusion 16: The committee concluded that consumers and health care providers struggled even more than usual to identify and select appropriate substitute products during the shortage. The government guidelines about the preparation of infant formula should continue to be identical to ensure consistent messaging across the federal government, to health care providers to disseminate to patients, and to manufacturers to share with consumers.
Conclusion 17: The committee concluded that the requirement in FDORA to provide information on appropriate substitutes for certain products (inborn errors of metabolism or other serious health conditions, such as prematurity) is important, but it does not address the need to develop a list for health care providers of appropriate substitutes for non-exempt and hypoallergenic infant formulas.
Recommendation 11: The Food and Drug Administration and the Centers for Disease Control and Prevention should work with infant nutrition experts and infant formula manufacturers to jointly develop guidance on how caregivers can substitute infant formula (based on ingredients) and guidance for providers and caregivers on how to feed their infants when no breast milk or safe infant formula is available, to address ongoing challenges, and to prepare for any future recall or supply disruption.
Implementation Considerations:
Guidance should be developed in concert with an independent panel of experts in pediatric nutrition and care that should differentiate approaches for feeding infants below and above 6 months of age and should be updated annually to reflect changes in the marketplace. Guidance materials should be downloadable, replicated across FDA, CDC, and USDA websites, and shared with state WIC agencies, public health agencies, relevant health care providers, professional organizations, and infant formula manufacturers.
Recommendation 12: The Food and Drug Administration should maintain a public list of all infant formulas currently marketed and registered in the United States, indexing formula name, whether the formula is exempt or non-exempt, and the registered list of ingredients that appear on the label.
WIC Participants
The committee found that WIC played a critical role in allowing the participants to obtain infant formula during the shortage, but WIC participants were more constrained than other customers in purchasing infant formula, and obtaining it remained more difficult and time-consuming than for other customers. When a shortage occurs, in order for WIC participants to obtain the available infant formula, two things must occur: (1) USDA must waive program rules governing its issuance, and (2) state WIC infant formula contracts must allow its issuance in container sizes, physical forms, and brands that are not usually permitted. The ABFA allows for waivers in future emergencies or supply disruptions and requires state WIC infant formula contracts to include specific remedies to mitigate the effects of recalls on WIC participants. One remedy is for the contract holder to provide the state WIC agency with an action plan that includes supply data if any of its contract brands of infant formula are recalled.
The committee found that even with waivers and contract remedies, WIC-authorized vendors must have infant formula in stock for participants to be able to obtain it. However, WIC is not involved in any stage of the distribution of infant formula from the contract holder to WIC-authorized vendors.
The committee found that the steps USDA and state WIC agencies took to buffer the 2022 shortage for participants were viewed by a variety of stakeholders as effective, but not timely, and were hampered by a lack of emergency preparedness. In particular, USDA’s 2021 Guide to Coordinating Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) Services When Regular Operations Are Disrupted and requirements regarding state alternative operating procedure plans lack key components.
Conclusion 18: The committee concluded that waivers are necessary—but not sufficient—to create equitable access to infant formula for WIC participants during a shortage. The specific remedies that USDA now requires WIC infant formula contracts to include will help WIC participants obtain available infant formula in the event of a recall-related shortage but would not help during disruptions precipitated by factors other than a recall. The
action plan the contract holder must provide if any of its contract brands of infant formula are recalled should provide state WIC staff with the data they need to set policies and support local staff to assist participants in obtaining infant formula. USDA guidance about the information, including supply data, that should be included in action plans is still needed to prevent state WIC agencies from receiving inadequate information. The most equitable way to distribute contract-brand infant formula during a shortage is based on past allocations.
Conclusion 19: The committee concluded that use of waivers to protect WIC participants during disruptions precipitated by factors other than recalls should not be constrained by lack of funding for non-contract infant formulas. One way to ensure that the WIC program has sufficient funding in the event of a shortage of infant formula not related to a recall is for Congress to adopt a proposal in the president’s budget for FY 2025 to establish an emergency contingency funding mechanism for WIC.
Conclusion 20: Updating USDA’s 2021 Guide to Coordinating Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) Services When Regular Operations Are Disrupted (2021 USDA Guide) and strengthening requirements regarding state plans for alternative operating procedures are essential to buffer future shortages.
Recommendation 13: The U.S. Department of Agriculture (USDA) should update the 2021 USDA Guide and requirements regarding state alternative operating procedure plans in 7 C.F.R. § 246.4(a)(30) to include a design of a governance structure for crisis response that articulates all stakeholders that should be involved, how they should work together, what is expected of them, and how the overall response should be coordinated at the state level. USDA should also develop a dashboard to track critical data on the supply and shortages of infant formula at the state or national level.
Consumers of Exempt Infant Formula
The committee found that users of exempt infant formulas have a particularly limited set of feeding options because use of other infant formulas or even breast milk can lead to severe health problems, even if used in the short term. These disproportionately vulnerable segments represent a small fraction of the overall infant formula market.
The committee found that non-exempt infant formula shortages can spill over to exempt infant formula markets when sold in the same channel, as with hypoallergenic formulas sold in retail. During the period of the 2022 infant formula shortage in the United States, Canada moved hypoallergenic infant formulas behind the counter and required medical necessity forms. The non-exempt infant formula shortages can also spill over to the exempt infant formula markets through online markets if those online retailers do not adequately adhere to medical necessity requirements. The committee found that some online stores may sell exempt infant formulas without requiring medical necessity forms.
Conclusion 21: The committee concluded that because of the much more restrictive set of options faced by users of most exempt infant formulas, special considerations are needed to ensure steady supply of those infant formulas, including protecting the supply against demand spillovers.
Recommendation 14: The Centers for Medicare & Medicaid Services should issue a rule requiring hospitals that accept Medicaid to have a plan for responding to a meaningful disruption of nutrition support for hospitalized infants.
Implementation Considerations:
CMS could consider all forms of nutrition for infants requiring exempt infant formula, including preterm infant formulas, human milk fortifiers, and donor milk. CMS should consider rulemaking either by updating the Emergency Preparedness Rule or by changing conditions of participation for hospitals accepting Medicaid.
PROTECTION, PROMOTION, AND SUPPORT OF BREASTFEEDING
The committee found that during the shortage, families of breastfed infants were protected against much of the stress and anguish of having to search for infant formula, the economic costs of such searches, and the use of potentially harmful coping practices to make up for inadequate infant formula. Many structural barriers impede the choice to breastfeed and the capacity to sustain breastfeeding, including (but not limited to) the provision of infant formula in the hospital, lack of paid maternity leave, access to medical support and treatment of lactation issues, and lack of social support for breastfeeding. As a result, the proportion of families who choose to breastfeed has risen in recent years, but continuation of breastfeeding lags national goals and is lower still among families served by WIC. WIC participants have low incomes, are often minoritized, and
are more frequently affected by structural barriers to breastfeeding. In March 2024, the National Academies convened a committee to understand the landscape of breastfeeding promotion, initiation, and support.
Conclusion 22: The committee concluded that continued breastfeeding reduced the proportion of families affected or severely affected by the shortage of infant formula and that attention to breastfeeding promotion, initiation, and support for all families remains essential for infant health.
Conclusion 23: The committee concluded that efforts to promote breastfeeding among WIC participants show some promises of success but have not adequately reduced disparities in breastfeeding with respect to the general population. Using robust methodological approaches, research by state WIC agencies, academic institutions, and research institutions is needed to evaluate promising intervention strategies to further improve breastfeeding initiation, duration, and intensity among WIC participants.
FDA has noted in its immediate national strategy to increase the resiliency of the U.S. infant formula market that it is “working to design and promote policies from U.S. government partners that support breastfeeding as well as infant and maternal health.”
AREAS FOR FURTHER RESEARCH
The committee was charged with providing recommendations for strengthening the resiliency of the infant formula market. The committee identified several areas where additional research would facilitate a better understanding of the landscape. The committee proposes that building the evidence suggested below would allow policy makers, regulators, and stakeholders along the entire infant formula supply chain to make informed decisions aimed at averting or limiting future shortages of infant formula. To enable key stakeholders to make evidence-informed decisions aimed at averting or limiting future shortages of infant formula, the committee recommends the following research be undertaken:
To address concentration in production it would be important to
- Assess the effects on firms, employment, consumers, and food security on lowering or eliminating tariffs on infant formula for U.S. manufacturers that diversify their capacity to supply to the U.S. market using imports from their facilities in select countries, such as the European Union, Mexico, Australia, and New Zealand. USTR could commission the U.S. International Trade Commission (USITC) to perform this analysis.
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Assess whether lowering or eliminating tariffs on infant formula for U.S. manufacturers could diversify their capacity to supply to the U.S. market using imports from their facilities in select countries, as well as whether tariffs on infant formula ingredients discourage production within the United States by small- or midsized producers.
- Additional considerations: USTR could consider commissioning the USITC for this assessment. The assessment should consider the effect on firms, employment, consumers, and food security. In the assessment, it would be important to consider the existing foreign infrastructure of compatible sites owned by U.S. manufacturers or compatible sites owned by non-U.S. infant formula manufacturers as well as which countries’ manufacturing capacity could increase diversification without heightening geopolitical risk.
- Assess the possible effects on U.S. firms, workers, farmers, and consumers of granting (1) permanent tariff exclusions for importers of infant formula and inputs used in the domestic production of infant formula and (2) permanent tariff cuts or exemptions for producers with facilities outside the United States, which could be done by USTR.
- Develop proposals for (1) ways the federal government could aid expansion of infant formula companies that are almost within reach of qualifying as a “responsive bidder” on WIC infant formula contracts but lack some marginal capacity, with the goal of developing their capacity sufficient to bid on the lowest quintile of state WIC contracts by volume; and (2) ways that WIC’s competitive bidding requirements could be revised to allow bids by a company that does not sell all three physical forms of infant formula (i.e., powder, liquid concentrate, and ready-to-feed). This could be done by the USDA Agricultural Marketing Service and Food and Nutrition Service, in consultation with the Department of Commerce National Institute for Standards and Technology.
- Additional considerations: USDA could consider consulting with the Department of Commerce National Institute for Standards and Technology in designing proposals to assist infant formula companies. The types of marginal capacities that such companies might lack include, for example, production facilities for ready-to-feed product, capacity to supply more than 75 percent of the required standard milk-based powder, or distribution networks in the relevant states. The aid should be contingent on companies committing to bid on WIC contracts.
To address the management of adverse consumer impacts, it would be important to:
- Model several scenarios other than a recall that could lead to an infant formula shortage (e.g., lack of a key ingredient or packaging component because of a weather event or geopolitical problem), at varying levels of severity and duration; the effect on the availability of infant formula, particularly on WIC’s ability to provide infant formula to participants; and estimate the cost of providing infant formula to WIC participants. FDA could do this in consultation with USDA.
- Examine additional buffering strategies to protect infant formula users with inborn errors of metabolism, rare medical conditions, and severe allergies or other conditions requiring amino acid–based infant formulas from a shortage of these products. HHS should consider expanding buffer inventory, along with other buffering strategies, in case of a recall and assess whether incentives, such as a subsidy, are necessary to maintain additional buffers.
- Identify ways to restrict access to exempt infant formulas to those with medical necessity at the first sign of a potential shortage (e.g., production disruption of exempt infant formula or a meaningful production disruption of non-exempt infant formula). HHS could work with medical experts to develop appropriate safeguards for access to these products during such a period.
Another relevant area on which to consider conducting analysis is
- The criteria, time, and resources needed to assess the various types of new infant formula notifications, based on the categories of infant formula products that are required to submit a 90-day notification to FDA. FDA could use the results of this analysis to provide information to Congress to determine if modifications are needed to the notification requirements in the Infant Formula Act. FDA’s analysis could consider the additional resources needed and whether the user fees should be implemented to provide the resources needed to facilitate the notification process, speed the review, and provide manufacturers with a definitive window of time in which they can expect a response.
FINAL REMARKS
While many steps were taken in response to the 2022 infant formula shortage, vulnerabilities remain. The committee provided findings, conclusions, and recommendations, and acknowledged where further research is needed to address these vulnerabilities. In the subsequent chapter, the committee will provide its overall perspectives and address how these various recommendations align with ongoing efforts by the federal government.
