Infant formula producers investigated by FTC over bids for government contracts

The US Federal Trade Commission is investigating whether infant formula producers including Abbott Laboratories and Nestle colluded in relation to bids for a government program.

The US regulator last year launched an investigation into possible coordination between infant formula businesses in connection with a program by the Department of Agriculture that provides free infant formula to low-income families with children. The Special Supplemental Nutrition Program for Women, Infants and Children, known as the WIC program, is responsible for more than half of formula sales in the US.

Documents published on the FTC’s website indicated that the investigation was examining whether any companies in the sector “engaged in collusion or coordination with any other market participant”. According to the FTC, only three manufacturers have bid on contracts for the program since 1996.

The program is dominated by Abbott and Reckitt Benckiser. In March, Abbott filed a petition to limit the scope of what he described as an “overbroad” FTC investigation. The regulator denied that request and gave Abbott until May 9 to follow up on its investigation, in a document released in April.

Abbott said the company is cooperating with the FTC’s request. Reckitt Benckiser said it could not comment pending a government investigation.

Nestlé confirmed that, along with others in this area, it had received a civil investigative demand related to the WIC contract bidding process and had responded to the FTC.

The investigation follows an infant formula supply crisis that emerged in February 2022, when safety issues forced Abbott to temporarily close a plant in Michigan that supplied 15 percent of US formula. This later worsened with stores including Walmart, Kroger and CVS rationing sales due to supply chain tensions linked to the Covid-19 pandemic and the war in Ukraine.

In January, Abbott said it was being investigated separately by the Justice Department regarding problems at its infant formula manufacturing plant in Sturgis, Michigan.

The crisis focused attention on the lack of competition in the US infant formula market. Abbott and Reckitt Benckiser together had about 80 percent market share before the supply disruption.

Experts say the high cost of building new plants, obtaining regulatory approvals and restrictions on foreign supplies have helped create a consolidated market.

Both companies have been able to maintain a large presence in the program because they can offer large discounts to states on bulk purchases that smaller providers cannot afford. Analysts have said the contract enables them to secure the most shelf space in retail outlets and is a major disincentive for other operators to invest in the US market.

FTC chair Leena Khan said last year that the agency would “continue to monitor the ongoing infant formula shortage, which is causing enormous concern, fear and financial burden for American families”.

She said the agency will “try to fully enforce the law” and assess whether manufacturers and distributors are limiting the availability of formula at retailers through illegal discrimination. Khan said the FTC had also launched a public investigation into Mobility, which contributed to the shortfall.

Steven Abrams, a professor at the University of Texas who specializes in newborn care, said the WIC contract system needed reform.

“It totally favors the two big players because these companies don’t make money from the WIC contract, but you make money from the shelf space that enables them to claim that at retailers,” he said.

Additional reporting by Madeline Speed