A recent report from the U.S. Government Accountability Office (GAO) highlights key vulnerabilities in the infant formula supply chain and suggests reforms to prevent future shortages. This comes after a 2022 formula crisis left families across the nation struggling to access an essential source of infant nutrition.
The GAO investigated the factors contributing to the shortage, which stemmed primarily from supply chain disruptions caused by the COVID-19 pandemic. The situation worsened when one of the nation’s largest formula manufacturers, a major supplier for the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), issued a massive recall following contamination concerns.
The shortage underscored the concentrated nature of the U.S. formula market, where a few manufacturers dominate production. Approximately 40% of American babies rely on formula provided through federal food assistance programs like WIC, making these programs critical to ensuring supply stability.
WIC’s bidding system, which awards exclusive state contracts to manufacturers offering the lowest prices, saves taxpayers money through substantial rebates. In fiscal year 2023, these rebates totaled $1.6 billion, supporting 1.3 million participants monthly. However, the “sole-source” nature of these contracts also centralizes supply, making the system highly vulnerable to disruptions.
The GAO noted a “spillover effect” where winning a WIC contract significantly increases a manufacturer’s market share, benefiting both WIC and non-WIC consumers. On average, this effect multiplies the winner’s market share sixfold.
To address these vulnerabilities, the GAO proposed two options. First, allowing families to purchase formula from any manufacturer could foster competition and expand consumer choice. However, this approach may increase program costs, reducing the number of families the program can support.
The second option involves partnering with multiple manufacturers instead of a single supplier. While this could reduce the risk of shortages and broaden choices, it may complicate program management, increase costs for states, and diminish manufacturers’ incentives to offer large rebates.
The GAO emphasized that each alternative comes with trade-offs, requiring careful consideration to balance cost efficiency, supply chain resilience, and family support. As policymakers evaluate these recommendations, preventing another formula shortage remains a critical priority for families nationwide.
