Baby Formula Shortage Subject of FTC Scrutiny

Alerts / June 2, 2022

On May 23, 2022, the Federal Trade Commission (FTC), at the prompting of President Joe Biden, announced that it will launch a civil investigation into the ongoing shortage of baby formula throughout the country. The FTC is hoping to unearth the factors that have contributed to market consolidation in light of the pressing supply chain issues affecting the baby formula industry. Frequently, investigations such as these impact players up and down the supply chain, including ingredient manufacturers and suppliers, distributors, and retailers.

Baby formula has been in short supply following the shutdown of a major manufacturer’s plant in February due to alleged contamination by bacteria after a whistleblower prompted an (albeit belated) investigation by the Food and Drug Administration (FDA). On May 16, a consent decree with the FDA in relation to that plant shutdown was entered into; the consent decree set conditions with which the plant must comply in order to resume that operation. The Biden administration has invoked the Defense Production Act, which will prioritize the delivery of ingredients used to produce baby formula, and is airlifting the equivalent of 1.5 million 8-ounce bottles of formula into the U.S. from outside the country. This week, President Biden met with baby formula industry executives to address the shortage and plan next steps to resolve the crisis.

While parents, grandparents and other family members anxiously wait for the shortage to be resolved, the FTC is looking into the root causes and is asking the public for input to aid in its investigation. The FTC has stated it will investigate the mergers and acquisitions that have led to consolidation in the baby formula industry. The FTC will also look at players up and down the supply chain in the industry, with the goal of bringing to light any antitrust or other misconduct that could have contributed to the current shortage crisis. Those who might have tried to benefit from the shortage – for example, through scalping, purchasing and reselling formula at exorbitant prices, curtailing production or supply, or hoarding to drive up demand and prices – will also face FTC scrutiny through subpoenas, civil investigative demands, interviews and possible depositions.

The entire investigative process could take years and would possibly result in injunctive relief against wrongdoers throughout the supply chain for baby formula. The inquiry has already increased congressional attention to consolidation in the food industry generally, which, in turn, may lead to other inquiries into ingredient supply chain players and result in government action geared toward encouraging more competition through, inter alia, tougher merger review going forward. The food industry is one that the Biden administration recently criticized as potentially being anticompetitive, further increasing the likelihood that the FTC investigation will be sweeping and far-reaching.

Authorship Credit: Carl W. Hittinger, Julian D. Perlman and Alyse F. Stach

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