The US Federal Trade Commission is probing whether infant formula producers, including Abbott Laboratories and Nestlé, have engaged in collusion in relation to bids for a government programme.
The US regulator last year launched an investigation into potential co-ordination among infant formula businesses regarding a programme by the Department of Agriculture that offers free infant formula to low-income families with children. The Special Supplemental Nutrition Program for Women, Infants, and Children, which is known as the WIC programme, accounts for more than half of formula sales in the US.
Documents published on the FTC’s website indicated the probe was examining whether any company in the sector had “engaged in collusion or co-ordination with any other market participant”. According to the FTC, just three manufacturers have bid on contracts for the programme since 1996.
The programme is dominated by Abbott and Reckitt Benckiser. Abbott in March filed a petition to limit the scope of what it described as an “overly broad” FTC investigation. The regulator denied that request and, in a document issued in April, gave Abbott until May 9 to comply with its investigation.
Abbott said the company was co-operating with the FTC’s request. Reckitt Benckiser said it could not comment on a pending government investigation.
Nestlé confirmed that it, along with others in the sector, received a civil investigative demand related to the WIC contract bidding process and had responded to the FTC.
The probe follows an infant formula supply crisis that emerged in February 2022 when safety issues forced Abbott to temporarily close a plant in Michigan that supplied 15 per cent of US formula. It later worsened because of supply chain strains linked to the Covid-19 pandemic and the war in Ukraine, with stores including Walmart, Kroger and CVS rationing sales after a wave of panic buying.
In January, Abbott said it was being investigated separately by the Department of Justice in relation to the problems at its baby formula manufacturing plant in Sturgis, Michigan.
The crisis focused attention on a lack of competition in the US infant formula market. Together, Abbott and Reckitt Benckiser had market share of about 80 per cent prior to the disruptions to supply.
Experts say the high cost of building new plants, achieving regulatory clearance and restrictions on foreign supplies have helped to create a consolidated market.
The two companies are able to maintain a large presence in the programme because they can offer large rebates to states on bulk purchases that smaller providers cannot afford. The contracts enable them to secure the most shelf space in retail outlets and are a major disincentive for other operators to invest in the US market, analysts have said.
FTC chair Lina Khan last year said the agency would continue monitoring “the ongoing infant formula shortage, which is causing enormous anxiety, fear, and financial burden for American families”.
She said the agency would “seek to fully enforce the law” and assess whether manufacturers and distributors are limiting the availability of formula at retailers via illegal discrimination. The FTC had also launched a public inquiry into dynamics that contributed to the shortage, Khan added.
Steven Abrams, a University of Texas professor who specialises in the care of newborn children, said there was a need for reform of the WIC contracting system.
“It completely favours the two big players because these companies don’t make money off the WIC contract but you make money out of the shelf space that it enables them to claim in retailers,” he said.
Additional reporting by Madeline Speed
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