The FTC is investigating whether infant formula makers, including Abbott Laboratories and Nestle, engaged in collusive practices related to bids for government projects.
U.S. regulators last year launched an investigation into the Department of Agriculture’s plan to provide free infant formula to low-income families with children, looking into potential coordination among infant formula companies. The Women’s, Infants and Children’s Special Supplemental Nutrition Program, or WIC Program, accounts for more than half of US formula sales.
Documents posted on the FTC’s website indicate that the investigation is examining whether any company in the industry “colluded or coordinated with any other market participant.” Since 1996, only three manufacturers have bid on contracts for the program, according to the FTC.
The program is led by Abbott and Reckitt Benckiser. Abbott filed a petition in March seeking to limit the scope of what it called an “overly broad” FTC probe. The regulator rejected the request, giving Abbott until May 9 to complete its investigation in a document released in April.
Abbott said the company is cooperating with the FTC’s request. Reckitt Benckiser said he could not comment on the pending government investigation.
Nestlé confirmed that it, along with others in the industry, has received requests for a civil investigation related to the WIC contract bidding process and has responded to the FTC.
The investigation follows an infant formula supply crisis in February 2022, when safety concerns forced Abbott to temporarily close a Michigan plant that supplies 15% of U.S. formula. Later, the situation worsened due to supply chain strains related to the Covid-19 pandemic and the war in Ukraine, with stores including Walmart, Kroger and CVS limiting sales after a wave of panic buying.
In January, Abbott said the U.S. Department of Justice was conducting a separate investigation into issues at its infant formula manufacturing plant in Sturgis, Michigan.
The crisis has focused attention on a lack of competition in the U.S. infant formula market. Abbott and Reckitt Benckiser had a combined market share of about 80% before the supply disruption.
Experts say the high cost of building new factories, obtaining regulatory permits and restrictions on foreign supply helps create a consolidated market.
The two companies are able to maintain a substantial presence in the program because they can offer states large rebates on bulk purchases that smaller suppliers cannot afford. Those contracts allow them to secure maximum shelf space in retail stores and are a major hurdle for other operators to invest in the U.S. market, analysts said.
FTC Chairman Lina Khan said last year that the agency would continue to monitor “persistent infant formula shortages, which are causing enormous anxiety, fear and financial burden on American families.”
She said the agency would “pursue comprehensive enforcement” and assess whether manufacturers and distributors are restricting the formula available at retailers through unlawful discrimination. The FTC also has a public investigation into the dynamics leading up to the shortage, Khan added.
Steven Abrams, a University of Texas professor who specializes in neonatal care, said reform of the WIC contracting system is needed.
“It’s all in favor of the two big companies because those companies don’t make money from the WIC contract, but you make money from the shelf space that they can claim at retailers,” he said.
Additional reporting by Madeline Speed