How the Government Created a Black Market for 'Unapproved' European Imports and a Baby Formula Shortage

'Baby formula is one of the most closely controlled food products in the United States,' according to Christina Szalinski of the New York Times.

As many people are aware, the United States is experiencing a severe shortage of baby formula. What began as Twitter complaints about "out of stock" warnings on Amazon purchases has escalated into a nationwide panic.

According to CBS News, 40 percent of the top-selling baby formula items were out of supply at retailers across the US as of late April, according to a Datasembly research.

The CEO of Datasembly, Ben Reich, told the TV network, "This is a staggering amount that you don't see for other categories."

The report gained enough traction to catch the White House's attention.

Jen Psaki, the White House press secretary, said on Monday that the administration is doing everything possible to alleviate the shortage, adding that producers claim to be operating at full capacity following a product recall by the Food and Drug Administration (FDA).

"The FDA is also focused on ensuring availability, and they're working around the clock to solve any potential shortage," Psaki added.

Psaki is correct in claiming that the product recall has exacerbated the baby formula scarcity.

Part of the scarcity derives from a potential bacterial outbreak at an Abbott plant in Michigan, which forced the recall of three major brands of powdered formula, as Eric Boehm of Reason pointed out. The situation was made worse when the plant was shut down for FDA inspection.

Still, it's reasonable to be skeptical of the notion that a single infection might destabilize the whole US baby formula market. And rightfully so.

A closer examination of US trade and regulatory policy reveals that the government is to blame for the baby formula scarcity.

Few may realize it, but baby formula is one of the most regulated food products in America. That’s not me saying it, but the New York Times.

As Christina Szalinski reported in March 2021, “baby formula is one of the most tightly regulated food products in the US, with the Food and Drug Administration (FDA) dictating the nutrients and vitamins, and setting strict rules about how formula is produced, packaged, and labeled.”

Despite these regulations—or, more likely, because of them—many American parents purchase "unapproved" European formula, despite the fact that it is technically illegal, as Szalinski points out.

"There are enormous Facebook communities devoted to European formulas," she explains, "where parents share spreadsheets and comprehensive notes on components and how these formulations compare to their American counterparts." "Some caregivers say they chose them because European brands provide formula options (such as goat's milk or milk from pasture-raised cows) that are unusual or nonexistent in FDA-regulated form in the United States." Others choose European brands because they believe the formulations are of higher quality and European formula controls are more stringent."

Americans are willing to pay a lot of money for European formula on this black(ish) market. According to Szalinski, German imports cost around $26 for a 400-gram package on one website offering EU baby formula, which is approximately quadruple the price of the top US infant formulae suggested by the Times.

These illicit black market imports have occasionally resulted in high-profile busts, such as in April 2021 in Philadelphia, when US Customs and Border Protection agents seized 588 cases of infant formula (worth $30,000) that violated the FDA's "import safety requirements."

Some may argue that the FDA is simply protecting Americans and their infants, which is undoubtedly what regulators want you to believe, but this ignores an inconvenient fact: despite the FDA's efforts, Americans are ingesting large volumes of black market baby formula, and the children are doing great.

However, the government's regulatory battle on baby formula imports isn't the only factor contributing to the shortfall. Tariffs have also had an impact. The US government slaps an 18 percent tax on baby formula (officially a "tariff rate quota"), as Cato scholar Scott Lincicome pointed out on Twitter.

Economists agree that tariffs cause market inefficiencies that hurt domestic consumers over time, and there's evidence to suspect that these import duties have made it more difficult for Americans to get baby formula during this scarcity (and hit their pocketbooks, too).

If the Biden administration is serious about addressing the newborn formula shortage, they could forego "working around the clock" and simply repeal the protectionist policies and regulations that make purchasing formula more difficult.

Some may argue that this would lead to more "questionable" foreign imports of baby formula, but it's a fallacy to suppose that bureaucrats in Washington, DC (or anywhere else for that matter) have the "correct" formula that fits some universal standard.

Indeed, as Szalinski points out in her New York Times article, while the EU and the US both need a number of the same vitamins and minerals in baby formula, there are some notable variances, particularly in terms of iron concentration and DHA (an omega-3 fatty acid).

Nearly all American baby formulae fail to fulfill the EU criteria because the EU needs high doses of DHA, which are not required at all in the United States.

"At the moment, the new infant formula Bobbie is the only US formula that meets the EU's DHA standards," adds Szalinski. "Bobbie is advertised as an FDA-regulated alternative to European formulas as a self-described 'European-style' formula."

Bureaucrats in Washington, DC, will probably certainly argue that their formula is the best and healthiest, whilst bureaucrats in Europe will almost certainly argue that they have the best combination of components.

This raises an essential question: does the EU or the United States have the best infant formula?

Many people believe they know, but economist Thomas Sowell points out that this is the wrong question to ask.

"The most fundamental concern is not what is best, but who will judge what is best," says Sowell.

Sowell was arguing that consumers with a stake in the game must eventually select which product or service is best for them, and government attempts to regulate that decision usually make it more difficult for consumers to receive the greatest product at the best price.

This is why, according to Ludwig von Mises, the genuine captains of the economic ship in a free market are customers, not politicians, CEOs, or bureaucrats.

“The real bosses, in the capitalist system of market economy, are the consumers,” Mises wrote in his book Bureaucracy. “They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. Their attitudes result either in profit or in loss for the enterpriser.”

The baby formula shortage is the latest example that shows most people in Washington, DC need to crack open some Mises and stop trying to provide “solutions” to markets.

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