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Explore the latest trends and actionable insights on the Baby Care market to inform business strategy and pinpoint opportunities and risks.

Supply Shortage in Baby Formula Industry Triggers Panic in the US

Industry: Baby Food
Current: Other Industry Indicators

At the beginning of May, 43% of baby formula was out of stock at retailers across the US.
Baby formula industry in the US grew just above 1% YoY in 2022.
In February, Abbott (the largest producer of baby formula in the US) closed its facility in Michigan due to investigations and product recalls.

The baby formula industry in the US is valued at US$1,638 million in 2022, growing more than 1% from 2021. Since February, the baby formula shortage in the US transformed from a severe inconvenience into a national crisis. The major reasons are a highly concentrated domestic market that was distorted by government intervention and disrupted by pandemic-related hoarding and supply chain. Nationwide, more than 40% of the formula is out of stock—a twenty-fold increase since the first half of 2021. As parents started stockpiling baby formula, retailers were forced to limit purchases. The following are the major reasons for this crisis:

Overly Concentrated Industry

The baby formula industry in the US lacks diversification, with only four major companies accounting for more than 90% of the market share. Abbott leads the industry with the majority of the market share, closely followed by Mead Johnson. Nestle and Perrigo holding a minority share in the market. Imports from foreign companies account for only 2%. The presence of a very few companies in the industry means that if the operations of any of these companies are disrupted, it creates a domino effect on the sector. In February, Abbott’s Michigan plant was closed due to major recalls for poor practices and unsafe products. In such a situation, other companies failed to meet the huge demands at such a short notice.

FDA Regulation — Minimal Imports

The FDA has stringent guidelines and regulations, which disqualify baby food products produced outside the US on grounds of food safety and security. This makes it very difficult for foreign baby formula companies to venture into the US. The FDA’s sole purpose is to ensure that American babies are fed safely by locally produced formula from reliable sources by putting up trade barriers and limited purchasing contracts for foreign companies. These interventions left the country dependent on a limited number of suppliers who continue to rely on a very few manufacturing plants. As a result, disruption in supply or production from one of the big companies would have a ripple effect on the entire industry.

Impact of COVID-19

The COVID-19 pandemic disrupted all sorts of supply chains. In 2020, sales peaked as families stockpiled baby formula over fears of an impending crisis. As the situation started to improve, families worked through their stockpiles, resulting in a dip in sales. This fluctuation in demand made planning for production difficult. Subsequently, companies faced difficulties in assessing the actual size of the market. To sum it up, demand for baby formula increased as parents started hoarding in 2020; then demand fell, which led suppliers to cut back production through 2021. Now, with more new mothers demanding more baby formula in 2022, orders are increasing faster than the recovery in supply.

How is the US Tackling the Situation?

The US government invoked the Defense Production Act to increase the production of baby formula and launched a program that would use commercial aircraft to pick up overseas stock of baby formula that meets the US standards.
The FDA announced plans to relax the rules on imported baby formula. As a result, Abbott is flying in supplies from Ireland.
Nestlé, which markets Gerber products in the US, is shipping formula made in the Netherlands to the US, alongside exporting Alfamino formula from Switzerland.
Abbott announced an agreement with the FDA to reopen its plant in Michigan.
The FDA announced the implementation of processes to make it easier for foreign manufacturers of baby formula to sell their products in the US.

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