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The Baby Formula Nightmare

The Baby Formula Nightmare
By Todd Strandberg

I first noticed there was something odd about baby formula when Walmart installed cameras to constantly monitor the shelves holding the product. It struck me as odd that this item would be a high theft risk. About half the sales of baby formula come from government-provided funds. I learned that you should never doubt Washington’s ability to turn a simple positive plan into a disaster.

The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) was established as a permanent program in 1974 to safeguard the health of low-income women, infants, and children up to age 5 who are at nutritional risk. This mission is carried out by providing nutritious foods to supplement diets, nutrition education (including breastfeeding promotion and support), and referrals to health and other social services.

There is a major crisis in the feeding of America’s babies right now because parents in some areas can’t get baby formula. A few months ago, a major producer of formula – Abbott Labs – shut down its main production facilities in Sturgis, Michigan, which had been contaminated with the bacteria Cronobacter sakazakii, killing two babies and injuring two others.

If you thought the contamination at the Sturgis plant would send Abbott Labs into panic mode, you would be wrong. The CEO of Abbott Labs has only made a few general statements about the incident.

Abbott has denied its formula is to blame, with the company telling Bloomberg that “There is no evidence to link our formulas to these infant illnesses.”

“Abbott called the recall a “short-term hindrance” and said it was working closely with the regulator and has begun implementing corrective actions and enhancements to the facility.

Abbott shares rose 2.4% to $122.90 in morning trade as some analysts said the comments during the conference call allayed worries over the recall. Despite the recall and supply chain issues, Abbott beat quarterly profit and revenue estimates in the first quarter.

Abbott Labs, Mead Johnson, and Nestle produce 98% of the formula in the U.S. This monopoly is why Abbott Labs doesn’t need to worry about losing any market share. The country has been carved up where one of the three firms will dominate a region. Most states only allow women to buy baby formula from one company, though each company offers a bunch of different brands.

To save money, the government requires states to hold auctions to get the lowest price for formula. The problem is that state agencies use a complex rebating system to give the contract for the entire state to one manufacturer, and that contract can only be changed once every four years.

This rebate system distorts the entire market in a state because it’s just not worth having alternative formulas on a retail shelf if half of the buyers simply cannot purchase those formulas. As a result, the market tips to the WIC supplier, and that supplier raises prices on non-WIC recipients and does so by between 26-35%.

Abbott Labs, Mead Johnson, and Nestle use lobbyists that work with the FDA to keep out any newcomers. Even though baby formula from Europe is much cheaper, no Congress member has any incentive to change the rules.

Baby Formula made in a third-world nation may actually be safer. According to Healthy Babies Bright Futures, baby formula made by the big guys in the U.S. is full of dangerous brain-altering heavy metals. HBBF tested thirteen different baby formulas, and every single one had “detectable levels of arsenic, cadmium, lead and/or mercury,” which are all considered to be neurotoxic, interfering with brain development and “causing permanent IQ reductions in children.”

Moreover, FDA inspections of Abbott plants are obviously a disaster. Abbott had old and dirty equipment making formula, falsified records, deceived regulators, had a bad product tracing, and did not fix problems after discovery. FDA inspectors noticed problems with the plant in September but ignored them. Then, a whistleblower told the FDA of these problems in October, but regulators didn’t even bother to interview him/her until December.

What is taking place in the baby formula trade is certainly occurring in a hundred other industries. If America had a greater moral foundation, this crisis would not be taking place. It stands as one more indication of why judgment is coming to our nation.

“The fear of the Lord is the beginning of wisdom: and the knowledge of the holy is understanding. For by me thy days shall be multiplied, and the years of thy life shall be increased. If thou be wise, thou shalt be wise for thyself: but if thou scornest, thou alone shalt bear it” (Proverbs 9:10-12).

– Todd

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