Parents Still Poached of Baby Formula While Egg Supply Is Turning Sunny Side Up

Scott Lincicome, Gabriella Beaumont-Smith, and Alfredo Carrillo Obregon

Reports last Friday broke that the Department of Justice (DOJ) has opened an investigation into potential criminal conduct at the Michigan factory at the center of the “nationwide infant formula shortage” that lasted for most of 2022. Whether laws were broken at the Abbott Laboratories plant is a matter for the DOJ, but we’re confident that the investigators won’t discover the real source of last year’s problems: federal policy.

As we explain in new Cato briefing paper, the Michigan plant closure surely put a major dent in U.S. infant formula production, but a wicked combination of trade, regulatory, and welfare policies turned the situation into a full‐​blown national crisis. In particular, tariff and non‐​tariff measures blocked imported formula from large, reputable, and in‐​demand producers abroad—producers that could’ve otherwise filled gaps left by the factory shutdown. At the same time, strict domestic regulations and government contracts for the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) discouraged domestic startups and prevented formula prices from adjusting. The result was a sclerotic, concentrated market in which a single factory closure produced persistent, nationwide shortages that required multiple emergency government actions—a situation that few other products, even ones like eggs that have been hit by similar shocks, experienced.

A new USDA report provides further support for our paper’s conclusions. In particular, the report highlights that suspension of tariffs on infant formula, enacted by Congress in July, “likely contribut[ed] to elevated imports during the second half of 2022.” Had those tariffs (and related regulatory restrictions) not been in place, imported formula could’ve helped out even sooner—and by far larger amounts (because foreign producers would’ve already established the necessary sales and distribution networks in the United States).

The USDA report also shows why the less‐​regulated U.S. egg market, while hobbled by an avian flu that dramatically reduced the domestic egg‐​laying chicken population, never experienced a formula‐​esque collapse or related government response. In particular, reduced domestic egg supply predictably caused prices to rise, pushing Americans to eat fewer eggs this year compared to last. (Elsewhere, we find that Americans also turned to cheaper, plant‐​based egg alternatives too.)

And, because trade in eggs is relatively unencumbered by government restrictions, private parties responded to shortfalls in domestic production by increasing imports from multiple countries. The USDA report estimates that egg imports were up 33.4 percent in 2022, relative to 2021.

As a result, widespread egg shortages have been—unlike with formula—averted, and USDA reports that wholesale egg prices are now in retreat (already down $1 from December highs) and will decline further in the weeks ahead as domestic supply rebuilds.

And no emergency government actions were needed.

The egg situation is yet another example of how freer markets can mitigate economic shocks more quickly than closed ones. Unfortunately, Congress (largely due to Big Dairy lobbying) seems not to have learned it, refusing to extend the infant formula tariff suspension even as discrete shortages persist today.

Maybe the DOJ can investigate that problem next.