I'M FROM THE GOVERNMENT, AND I'M HERE TO HELP YOU.

Some help, if it's offering to fix a situation it got you into.  "The baby-formula shortage was created by the government, and its persistence is evidence of failed leadership."  We'd understand the wrong in the glazier's nephew sneaking out at night to break windows.  The wrong on the shelves of our stores is subtler.

The baby-formula shortage was created by the government, and its persistence is the result of failed leadership. Food products, especially baby formula, are heavily regulated by the Food and Drug Administration (FDA). Despite experts and parents clamoring for months for the White House, the Biden administration ignored the cries of parents until the shortages reached crisis levels.

The shortages stem from the FDA’s February 17 recall of baby-formula products after a lethal bacterial strain was discovered in some products at the Abbott Nutrition plant in Sturgis, Mich. An anonymous whistle blower had previously reported problems with the plant, which the FDA did not act on for months. Months later, the FDA shut down the plant. However, the Abbott plant will soon reopen as the Centers for Disease Control and Prevention (CDC) found no link between the bacteria and the plant. Still, it will take time before the plant returns to normal production.

That was the horseshoe nail that fell out. The problem was longer in festering.

The Abbott recall was not the only cause of the shortage. During the COVID-19 lockdowns, scared parents hoarded baby formula. As parents worked through their stockpiles into 2021, manufacturers reduced production. Last year also saw a 1 percent increase in birthrates. If that trend continued in the early 2022, it would have created a perfect storm: insufficient supply and surging demand.

Apparently, at least some parents were coping with that fear in a procreative way. That brings us to the current situation, where my local supermarket has the formula in the same locked case where they keep the expensive liquor.

But then, there's that government monopsony at work again.  (I promise, not all of today's posts will be about government monopsonies.)

The U.S. Department of Agriculture (USDA) is the largest purchaser of baby formula. The department’s Women, Infant, Children (WIC) program provides baby formula for low-income families. The existence of this program, and the relatively few suppliers with which it contracts, creates a winner-take-all dynamic in the market, resulting in the over-centralization of production.

Three major companies are responsible for 90 percent of baby formula sold in the U.S.—Abbott, Nestlé, Mead Johnson. The big three companies also supply the formula used by other brand labels. The shutdown of the Michigan Abbott plant disrupted a substantial portion of the baby-formula supply. According to Datasembly, baby formula was out-of-stock across more than 40 percent of the country in the beginning of May. Demand isn’t rational, and the product itself is nonfungible, so the supply termination from the Abbott plant caused a run on baby formula.

Taken together, we have a perfect storm of actions by the government, supposedly In The Public Interest, that didn't work so well.

The cost of complying with such extensive regulation represents a significant barrier to entry into the formula market. This year, ByHeart became the first new manufacturer of baby formula in the U.S. in 15 years after spending five years getting its manufacturing facility opened, supply chain in place, clinical trial completed, and regulatory approval secured.

The federal government’s role in concentrating the market doesn’t end there. Only three of these companies — Abbott, Mead Johnson, and Gerber — hold contracts for the Special Supplemental Nutrition Program for Women, Infants and Children (WIC), a federal assistance program, and those in receipt of benefits under this program can only use products made by the company contracted with their state. About half the total infant formula purchased in the United States is purchased by WIC recipients.

Why don’t stores just stock imported formula? Again, government action. The federal government imposes significant tariff, about 18%, and non-tariff barriers on formula imports. The FDA bars the sale of formula from Europe if it doesn’t have FDA-compliant nutritional labels. Last year, it forced a recall of approximately 76,000 units of German formula, not because it posed any risk to infants, but because it didn’t meet the FDA’s labeling standards: the products didn’t inform parents that they contained less than 1 milligram of iron per 100 calories.

And, note, baby formula is a relatively routine product to produce and package, and a startup still requires five years to clear approval.

There's more on the monopsony here.  I'll limit my use of that post to its summary.

Bad U.S. policy surely didn’t cause the infant formula crisis, but it just as surely made the situation worse than it needed to be. Trade barriers and poorly designed welfare policies helped create a brittle system dominated by a few domestic players—a system that might muddle through in the good times but one that crumbles in the face of a serious shock and struggles to recover thereafter. Meanwhile, American consumers (here, babies and their already frazzled parents) are left in the lurch, and world-class foreign producers can’t help much because they lack the necessary paperwork and financial incentives or because past U.S. policies have discouraged them from setting up official distribution channels or new facilities to serve the American market.

Given market realities, it seems unlikely that U.S. policymakers can flip some policy switch and quickly fix the situation, but they can at least (hopefully) learn a few lessons.

Yes, although I doubt it. Whenever someone seeks national office on a platform of reducing the scope and intrusiveness of Government, some doofus will ask why somebody who is "against government" is seeking elective office. The pithy response is "come back when you grow up" and the patient response is "because there are limits to Expertise."  How badly have the experts (and this is bipartisan failure) fouled up?  There's a formula factory in Canada selling product to China that can't be sold in the United States.

John Phelan correctly concludes,

The formula shortage is not the result of “market failure” but government failure. The Biden administration is now airlifting formula from Europe, but that is simply government trying to remedy a problem it created. It would be much more help to desperate parents and their children to just let the private sector import it.

It would not be in the interest of the Party of Bigger Government to concede that, though.