The baby formula shortage highlights the delicate nature of food supply chains

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Image: Reuters/Brendan McDermid
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For months, baby formula has been in short supply in the US.

Nearly a third of formula products were out of stock at 20 major US retailers as of April, according to Datasembly, a data analytics firm. In some states, such as Connecticut, Delaware, Montana, New Jersey, Rhode Island, Texas, and Washington, the out of stock rate hit 40% the week of April 3.

The formula shortage stems from ongoing pandemic-related supply chain snags. Manufacturers are facing difficulty in procuring key ingredients, such as cow’s milk, as well as shortages in packaging and labor. A recall from Abbott Nutrition, a major manufacturer of formula, in February worsened the situation. In response, retailers from CVS to Walgreens are limiting the amount of formula customers can buy at one time. Meanwhile, shoppers are turning to Facebook groups to alert one another of restocks and bargains.

This is the latest pandemic-related shortage, which has hit everything from french fries to cream cheese, and there are underlying factors that make food supply chains particularly susceptible to major disruptions.

The fraught nature of food supply chains

Like many areas of US food manufacturing, the infant formula industry is highly concentrated (pdf), and dominated by just a few major players (pdf). These manufacturers compete on price, and so efficiency is crucial, said Rachna Shah, a supply chain professor at University of Minnesota’s Carlson School of Management. In other words, there can’t be extra supply or back stock, since that is costly. In contrast, clothing manufacturers compete more on what’s fashionable in the moment than on cost, so the main challenge is getting to market quickly rather than producing efficiently, she said.

As a result, any disruption to food-related supply chains can cause huge problems, where consumers will feel the effect immediately, she said.

Individual decisions are also contributing to lack of formula supply. News of potential shortages lead to panic buying and hoarding, said Shah, who is currently researching this area. “I expect the baby formula shortage to worsen before it gets better,” she said.