EU secure in infant formula supply, as shipments to US accelerate

26 May 2022 --- The European supply of infant formula remains secure, as the US is scrambling amid nationwide shortages. Industry experts reassure the events unfolding in the US are an extraordinary situation, which is not expected to be seen across the EU.

“What has happened in the US infant milk formula market is an extreme case,” Timo Pajari, VP of business unit powders and international food solutions at Valio, tells NutritionInsight.

In the same line, Jakob Madsen Pedersen, head of global sales, pediatric, Arla Foods Ingredients affirms that the “situation is less serious in Europe,” with the company having stocks of key ingredients in the infant formula production –whey proteins, milk powders and lactose.

Tariffs of 17.5% on formula were imposed in 2013 by the Obama-Biden administration.FDA eases rules to try to flood markets with formula
The US Food & Drug Administration (FDA) has revealed that UK-based Kendal Nutricare will import 2 million infant formula cans, with the first ones landing in US stores this June. 

“Kendal Nutricare currently has over 40,000 cans in stock for immediate dispatch,” informs the FDA.

According to the agency, there is a 300% increase in formula coming from Europe, with, for example, Danone tripling its formula cans exports, sending up to 2.4 million cans to the US so far this year. 

The French company started to scale up its exports this March by sending 64,000 kg of the product after the Abbott February recall.

The FDA is using its “enforcement discretion” to take advantage of the increased flexible regulation under the Defense Production Act – a wartime last-resource tool – invoked by the Biden administration in what the White House dubbed “Operation Fly Formula.”

According to the FDA, US formula imports have tripled this year compared to 2021 as the public body works hand in hand with foreign authorities from the UK and the EU.

The latest numbers on stock rates in the US show an improvement of the situation with 80% in-stock rates, notes the FDA. However, some states like New York still have 40% of retailers out of formula, according to the city’s Mayor, Eric Adams.

European formula situation
Pedersen explains that Arla has been able to meet its target in terms of supply of ingredients by forecasting demand in advance and closely managing its stockpiles and supplies.

Pajari notes that Valio’s strategy has been centered on having a simple and transparent supply chain based on local milk and whey. 

“We see it possible to increase the infant milk formula powder production if the demand increases,” affirms Pajari.   

However, he notes that global food supply still concerns him “as raw material availability, increasing costs and supply issues are causing significant price inflation on food.”

Protectionism gone wrong?According to the FDA, US formula imports have tripled this year.
The US produces 98% of the baby formula for its population, limited to a pool of four primary manufacturers – Abbott, Mead Johnson Nutrition, Nestlé and Perrigo. 

According to Pedersen, Abbott accounts for around 40% of the country’s total baby formula market, and when the supply was shut down it created a “huge gap in the US market.”

“In the short term, the country’s other main players have been unable to fill this gap, so the FDA has now allowed overseas brands to start exporting products to the US,” says Pedersen.

In a bid to tackle the issue in the long term, the US Federal Trade Commission has launched a public inquiry to investigate the monopolistic concentration of the sector. 

The US, which saw marginal revenues on tariffing the 2% of formula imported, is now spending big time with an emergency air shipment of finished formula goods from Europe.

Under the complex regulatory system, European exporters have to add, to the mentioned 17.5%, some 14.9% extra tariff, plus US$1.04 per kg of product if they exceed the threshold of formula exported –set at a maximum of 100 metric tons per year for the entire global industry. 

Abbot an extraordinary situation
Pajari explains that the Abbot situation is a severe event out of normality. In the same line, Pedersen says that what happened in the US – with the closing of a significant infant formula plant due to two infant deaths– is “a rare occurrence and very unfortunate.”

“In the global infant nutrition industry, only a handful of cases of this nature have ever been recorded and, because of those, I believe we now have an industry that collaborates better and is striving to learn from such incidents to mitigate future risks, highlights Pedersen.”

Pedersen underscores that the formula quality and control in the EU is rigorous, with “all the quality steps in the production process being intensely scrutinized.” 

Abbott has been air shipping formula – to avoid issues with supply chain transport – from its manufacturing plant in Ireland, as the US military has already brought, by plane, 35 tons of the product from Switzerland. 

By Marc Cervera