The Federal Trade Commission (FTC) launched an investigation into baby formula manufacturers on Tuesday, May 24, to determine whether corporate mergers contributed to a nationwide supply shortage by concentrating the industry.
FTC Chair Lina Khan said that the commission would also investigate whether infant formula makers and distributors engaged in illegal economic discrimination that limited the availability of their products at some retailers.
Khan issued a statement to CNBC about the investigation, saying, "Discriminatory terms and conditions can exacerbate the inability of some grocers, pharmacies, and other stores to source products in short supply, impacting both rural and inner-city communities in particular."
Baby formula shortage worsened after the Abbott plant closure
Parents across the United States have struggled to find a formula for their babies and infants at stores after Abbott Nutrition shut down its facility in Sturgis, Michigan, back in February due to bacterial contamination.
Four infants who consumed formula made at the Michigan plant were hospitalized with bacterial infections, and two of them later died. Abbott has said there is "no conclusive evidence" that its infant formula led to the hospitalizations and deaths.
Four manufacturers-Abbott, Nestle USA, Perrigo, and Mead Johnson Nutrition-control 90 percent of the U.S. market. The supply chain in the United States is easily disrupted when one formula plant goes offline.
USA Today reported that Abbott and the Food and Drug Administration reached an agreement to reopen the Michigan facility to help ease the baby formula shortage, subject to conditions the company has to fulfill to ensure the plant meets American food safety standards. The agreement, called a consent decree, is enforceable by federal courts. Abbott faces the threat of $30,000 daily fines if it fails to comply.
President Joe Biden asked the FTC earlier this month to investigate the baby formula shortage to determine whether manufacturers contributed to the problem by keeping formula from smaller retailers. Biden also asked the commission to stop any businesses or individuals from taking advantage of the scarcity by price-gouging affected parents.
Khan says FTC would use the full force of the law against scammers
Khan said the FTC would use the full force of the law against anyone who is found to be scamming families who are trying to buy formula, including through online bots that automatically purchase and resell formula at unreasonably high prices.
Khan said that while reselling these formula products is not illegal and may serve a useful function, using online bots or other automated tools to divert large amounts of supply of life-sustaining products from ordinary retailers and then prey on desperate families may constitute an unfair practice under the FTC Act.
Biden recently invoked the Defense Production Act, a law passed in response to the Korean War, to help manufacturers boost production by ordering suppliers to prioritize the delivery of ingredients for baby formula. The White House also announced that the U.S. is airlifting the equivalent of 1.5 million eight-ounce bottles of formula from abroad.
