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FTC scrutinizing formula makers

Suspicions of contract-bidding collusion prompt inquiry by Julian Mark The Washington Post | May 25, 2023 at 1:45 a.m.
Similac Alimentum Hypoallergenic Infant Formula, made by Abbott Nutrition and imported from Puerto Rico, is for sale at a Stew Leonard’s grocery store in Yonkers, New York, in this June 10, 2022 file photo. (AP)

The Federal Trade Commission is investigating whether Abbott Laboratories and other baby-formula makers engaged in collusion while bidding on government contracts.

More than half of infant-formula sales are made through an Agriculture Department program that provides free formula to low-income families, according to FTC documents detailing the investigation, which was first reported by the Wall Street Journal. Contracts for those programs are administered through a state-level bidding process.

In 2022, the trade commission kicked off an investigation into whether participants in the baby-formula market -- which is dominated by a small number of manufacturers -- were in coordination during the bidding process to maintain control of markets in states where they remained dominant. The agency said the companies would be incentivized to do so because sales through the government formula program can increase commercial sales.

Nestlé, which produces Gerber formula, told The Washington Post that it received an information request from the trade commission and has responded. Reckitt Benckiser told The Post that while it does not comment on specific government investigations, it complies with regulatory and enforcement agency requests "as a matter of principle."

An Abbott spokesman told The Post that it was cooperating with the trade commission's requests. In a February letter to the regulator, an attorney for Abbott wrote that the company is "unaware of any evidence that creates even a hint of collusion or coordination."

In February 2022, contamination at an Abbott Nutrition production plant in Michigan led to a formula shortage that was exacerbated by pandemic-related supply chain issues. The shortage became a crisis for many low-income parents and those with high-risk infants, as they struggled to find the formula that their babies relied on.

The Justice Department has opened a criminal investigation into the Abbott plant in Sturgis, Mich., which closed after four infants became ill, with two of them dying, after consuming powdered formula manufactured there. Abbott said in January that it was cooperating with the inquiry.

The documents detailing the trade commission's investigation did not explicitly mention the incident or formula shortage, although it did highlight that Abbott controls 48% of "a highly concentrated market."

Four formula producers -- Abbott, Reckitt, Nestlé and Perrigo -- control 90% of the formula market, CNBC reported in May 2022. Abbott, Reckitt and Nestlé were shown to hold government formula contracts that month, according to the Agriculture Department. Abbott holds contracts in 32 states and Washington; Mead Johnson, a Reckitt subsidiary, has contracts in 12 states; and Nestlé has contracts in six states.

In 2021, the program -- called the Special Supplemental Nutrition Program for Women, Infants and Children -- served about 6.2 million participants per month, which included 43% of all infants in United States.

State agencies that administer the program have been required to solicit competitive bids from formula manufacturers since 1989, and states typically ask for bids every three or four years.

Print Headline: FTC scrutinizing formula makers


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