Feds probe whether baby formula makers broke the law in bidding for state contracts
Federal regulators are investigating whether baby formula makers broke the law in bidding for state contracts.
The Federal Trade Commission last year launched a probe into the baby formula crisis. As part of that investigation, the agency in January sent an information request to formula maker Abbott Laboratories, according to a document on the FTC's website.
Abbott, which makes Similac and which produces nearly half of the infant formula in the U.S., is one of just three formula manufacturers that have regularly bid to supply the product for state-run Women, Infants and Children (WIC) programs, according to the U.S. Department of Agriculture.
More than half the children born in the U.S. use WIC, which provides free formula to low-income moms and babies. States award contracts for the program every three to four years, with the business going to the lowest bidder, according to the FTC.
A WIC contract, which gives a formula maker the right to supply all baby formula for a state's WIC program, can create "lucrative spillover effects" for companies, the FTC said in online documents. This "may also create incentives to engage in collusive or coordinated market allocation, whereby incumbent WIC contract holders agree not to bid against each other so that they can continue enjoying dominant positions in non-WIC markets in their respective states," the agency wrote.
Formula shortage probe
Abbott is also under investigation by the Justice Department and the Securities and Exchange Commission over factors that led to the shutdown of the company's Michigan factory, worsening a nationwide baby formula shortage last year.
In a petition to the FTC, Abbott said the agency's request was too broad and lacks a "factual basis."
Abbott did not reply to a request for comment from CBS News. The company told the Wall Street Journal, which first reported the FTC's antitrust probe, that it was cooperating with the regulator.
Nestlé, the maker of Gerber formula, also received an investigative letter from the FTC, according to the Journal. It is unclear whether Reckitt Benckiser, the third major formula maker, received a similar demand.
Neither Nestlé nor Reckitt replied to a request for comment from CBS MoneyWatch.
A 2015 study by the U.S. Department of Agriculture on the WIC program found that although just three companies competed for WIC baby formula contracts, the market remained "highly competitive." The USDA also found there were "large disparities" between the bid that won state contracts and the second-highest bid.
The patterns in the USDA's survey are "potentially indicative of non-competitive bidding for WIC formula contracts," the FTC said.
The FTC has no role in regulating consumer safety or manufacturing issues affecting baby formula, but the agency "can take steps to address any anticompetitive, unfair, or deceptive acts or practices that have contributed to or are worsening this problem," Chair Lina Khan said in a statement last year asking for consumer input on the baby-formula shortage.
"The FTC can also examine the infant formula industry to identify the factors that created such a fragile market, where a single disruption at a single plant can jeopardize supply," Khan added.
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