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David Dayen on the Baby Formula Shortage & Monopolies in the Age of Corporate Power

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House lawmakers have raised alarm over a nationwide baby formula shortage after a manufacturer in Michigan shut down over health concerns and was linked to the deaths of two infants. Advocates are calling for greater accountability and investigation into the manufacturer, Abbott Laboratories, even as the Food and Drug Administration is in talks to allow the plant to reopen. We look at how Abbott’s grip on the market for baby formula, amounting to about 20% of all formula distributed in the U.S., contributed to the crisis. An overhaul to the system where the government subsidizes only a few formula brands can help combat the monopolization that has caused this crisis, says David Dayen, executive editor of The American Prospect.

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This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: This is Democracy Now!,, The War and Peace Report. I’m Amy Goodman, with Juan González.

With the nation facing a critical shortage of baby formula, we look now at the role of monopolies. The Biden administration has announced plans to alleviate the crisis, as the Food and Drug Administration and Abbott Laboratories says it’s reached an agreement to allow Abbott to reopen the nation’s largest baby formula plant. The plant had been closed due to concerns over bacterial contamination, months after a whistleblower alerted the FDA to alleged safety lapses and then was fired. Multiple babies became sick after eating formula from that plant; two babies died.

Meanwhile, the FDA has eased import rules on baby formula made overseas. And the American Academy of Pediatrics has said babies as young as 6 months old can now be fed cow’s milk for a brief period of time due to the baby formula shortage. Until recently, pediatricians had recommended babies not be fed cow’s milk until they’re at least a year old.

This is White House Press Secretary Karine Jean-Pierre responding Monday to questions about the shortage.

PRESS SECRETARY KARINE JEAN-PIERRE: Throughout the weekend, we’ve been working closely with manufacturers and retailers to identify transportation and logistical needs to increase the amount and spread of FDA-approved formula being shipped into the country and ensure that formula is quickly moving from factories to retail. The president understands. He gets this. He gets how stressful it is for parents trying to feed their children, which is why we’re leaving no stone unturned.

AMY GOODMAN: For more, we’re joined by David Dayen, executive editor of The American Prospect. He writes about the four companies that sell almost all baby formula in the United States in his new piece headlined “The Age of Rationing: From pandemic supply chain snarls to baby formula shortages, we forgot that physical production isn’t magic, and we need to engineer it for stability.”

So, let’s start with this real catastrophe right now for parents with babies across the country and the whole issue of monopolies, starting with the whistleblower, who alerted the company and the FDA. And the response? The whistleblower was fired. Two babies die. We’re talking about months ago, before we got to this point where the shelves are bare for everyone.

DAVID DAYEN: Yeah. The whistleblower first alerted the company internally and then alerted the FDA. This was way back last October. This facility, in Sturgis, Michigan, produces about 20% of the nation’s supply of formula. So, obviously, you take that offline, you’re going to have a problem. It’s magnified even more by the market structure and the way that formula is sold. But just alone, if you take one out of every five boxes of formula off the shelves while this is investigated, you’re going to have a problem of getting supply into the places that you need.

JUAN GONZÁLEZ: And, David Dayen, how did we get to this point that four companies — it seems almost every major industry in America today, there’s three or four companies that monopolize or control the supply. How did we get to this point in terms of baby formula?

DAVID DAYEN: I would argue it’s even worse in the baby formula industry. There are really two large conglomerates: Abbott Labs, which makes Similac and also produces medical devices, and Reckitt Benckiser, which is the creator of Enfamil, the other major brand, and they’re mostly known for making Lysol. They’re a U.K. company that makes a whole bunch of consumer goods. They’re really the giants. About two-thirds of the market is in the hands of those two companies. Nestlé, through the Gerber brand, and Perrigo, which makes store brands, they have a little sliver.

But the reason is that we have a program called Women, Infants and Children, the WIC program, and about half of all formula passes through that program, that goes to poor families. And it’s very well intentioned. You get very large discounts, the government gets, for purchasing formula and then getting it on to poor families. But they do this in a way that says that each state does a competitive bidding process with a formula company, and in exchange for those volume discounts, they get market exclusivity. So, if you go to the state of Michigan, the state of California, the state of Oregon, there’s only one company that, if you’re a WIC recipient, you can actually buy and get that formula for free. So, other competitors of that dominant company, whether it’s in the WIC program or not, you’re not going to put stuff on the shelves if half of your customers can’t buy it. So what you end up having is these little monopolies in all 50 states. And that’s because of the structure of the WIC program, which gives the exclusive sole-source contract in exchange for a discount.

JUAN GONZÁLEZ: And while everyone is focused on baby formula, can you talk about Abbott Labs and what other crucial products for children are also being disrupted right now?

DAVID DAYEN: Yeah, I mean, Abbott Labs makes a whole host of other medical devices and healthcare products. Of course, we were reminded at the beginning of the year that Abbott Labs was one of the two companies that was allowed to make COVID-19 tests in this country. And they were — as we all remember, when there was a surge in COVID cases at the beginning of the year, there was a shortage of that equipment. Last year, Abbott Labs shut down its facility for making COVID tests because of low demand. So there wasn’t a stockpile. And as a result, when cases surged and people wanted the at-home tests, they weren’t readily available. And so, this speaks to sort of a desire to cut costs over creating some redundancies, some resiliency, some inventory on the part of Abbott and on the part of the government itself, frankly, and it’s led to a lot of problems throughout the healthcare space.

AMY GOODMAN: So, the answer for President Biden is to allow in foreign baby formula companies in this crisis. There was a discussion last week of invoking the Defense Production Act. You wrote the book Monopolized: Life in the Age of Corporate Power. What do you think needs further to happen so we’re not going to see something like this again? And also, just the outrage of there being a whistleblower, how the FDA plays in this, because they went to the FDA, they went to Abbott, they were just fired?

DAVID DAYEN: Yeah, I mean, and if you read the complaint between the FDA and Abbott, you’ll find that traces of this bacteria that ended up killing these two babies was found in Abbott products in 2019 and in 2020. So, obviously, there are a lot of problems at this lab in Sturgis, Michigan, and the FDA needs to do just a much better job of monitoring all this. So, that’s number one.

Number two, I think you need to overhaul this WIC program and not create this situation where you have 50 dominant little mini monopolies throughout the country for formula. It makes the whole system far less resilient. And if there’s one shock, basically, you end up with this kind of crisis. Thirty-four states, Abbott holds that WIC contract, and the states in which supply is most in shortage right now correspond to the states where Abbott holds that contract. So, that’s clearly the problem.

There are several ways to go about it. One is, you know, you just sort of — if you want to do this market with WIC where poor families get these discounts — and it’s very important that they do — you could make that a government program and let private companies on the non-WIC side of the market compete with one another. The other option is that instead of hiving off for the poor each purchase that they have to make, so that they have to get a WIC program for formula, and they need food stamps for food, and they need a housing voucher for housing, you could just sort of give a larger cash benefit and let families figure out what they need on their own, and not hive these things off and create these problems with the overall market.

JUAN GONZÁLEZ: David, we only have a minute left, but I wanted to turn to another topic. There are primary elections happening today in several states: Pennsylvania, North Carolina, Idaho, Kentucky. What you’re looking for in terms of these coming elections?

DAVID DAYEN: Yeah, there are several major states in which you’ve seen these large outside groups, corporate money come into these races and move in on the side of a centrist candidate running against a progressive. Summer Lee, the progressive candidate in the Pittsburgh area in Pennsylvania, that’s an important House race. There are two House races in North Carolina that experience this. Largely, you have these PACs, like AIPAC. You have this one PAC called Protect Our Future, which is bankrolled by a crypto billionaire. They’re all coming in, and there’s just this tremendous amount of money that’s being pumped into these races. And we’ll see if progressives can survive this onslaught in these particular races in Pennsylvania and North Carolina. There’s also a couple in Oregon that are interesting to look at. So that’s really what I’m looking at.

AMY GOODMAN: And the Senate race in Pennsylvania that has — getting a lot of attention? Three candidates could have all been supported by Trump, but he supported one?

DAVID DAYEN: Yeah, so, we’ll see what happens. Kathy Barnette, who was apparently at January 6th and has espoused some really dangerous rhetoric, she is surging right now. Doctor Oz is the former TV star that’s been endorsed by Trump. And then you have David McCormick, a hedge fund billionaire, who’s spent millions of dollars of his own money in this race. So, we’ll see what happens on the Republican side. On the Democratic side, it looks like John Fetterman will be the candidate on — for the Democrats.

AMY GOODMAN: Although he did have a stroke last week.


AMY GOODMAN: We’ll leave it there but pick it up tomorrow. I’m Amy Goodman, with Juan González. David Dayen, thank you.

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