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Formula Bidding Wars: Competing to Feed America’s Babies

Formula Bidding Wars: Competing to Feed America’s Babies

 

When you think of companies in fierce bidding wars to win lucrative government contracts, you’re probably not thinking of infant formula companies. However, the purchase of infant formula by the Special Supplemental Nutrition Program for Women, Infants and Children (WIC) accounts for between half and two thirds of the infant formula sold in the United States according to an article by Marion Nestle in The Atlantic.

Nestle’s article stemmed from a United States Department of Agriculture study on Rising Infant Formula Costs to the WIC Program: Recent Trends in Rebates and Wholesale Prices by Victor Oliveira, Elizabeth Frazao and David Smallwood. The report had two particularly interesting findings — one on the price of formula purchased by WIC and another on the impact of WIC contracts on the larger market share of formula companies.

WIC grants contracts to the company that bids the lowest price, or, in other words, the one that gives the deepest discount. Despite fierce bidding, the price of infant formula to WIC has increased recently. Infant formula is sold to WIC at a percentage of the retail cost. In the past, WIC paid on average 9 percent of the wholesale price. In 2008, however, WIC was paying, on average, 15 percent of the wholesale price.

In addition to the discount being cut, the wholesale price of infant formula also increased as WIC switched to the more expensive formulas that are supplemented with DHA/ARA fatty acids (a move that is controversial because it is more expensive despite the health benefits being questioned). Overall, the increases resulted in WIC agencies spending around $127 million more on infant formula in 2008 than they did in the previous year (after accounting for inflation).

The other interesting finding, highlighted in Marion Nestle’s article in The Atlantic, is that the infant formula manufacturer that holds the contract with WIC within a particular jurisdiction also accounts for around 84% of formula sold by the top three manufacturers. Ultimately, when WIC switches manufacturers, the new brand contracted by WIC experiences an average 74% increase in its market share. The study further demonstrated that the increased brand equity extends beyond the WIC program to increased sales outside of the WIC contract. This demonstrates that holding the WIC contract is an effective marketing tool for formula companies.

Infant formula companies often talk about the research they are doing to try to improve infant formula. Despite those claims, most infant formulas are still made with questionable ingredients (corn syrup, genetically modified ingredients, milk from cows injected with rbGH, etc.) while formula companies provide deep discounts to the government for its purchases of formula and send out boxes of free formula to any mom who asks for it (and even those who don’t).

The findings in the WIC study call into question whether the government should be investing in purchasing the most inexpensive formula possible, especially if it props up those brands. Should the government instead be looking for new ways of helping low income families without directly benefiting specific formula companies? In Canada, for example, tax credits are given to low income families and in some jurisdictions financial assistance is also provided to both breastfeeding mothers and to those who need to purchase formula, without dictating which brand will benefit.

Related stories:

Nestlé Ignores Critics and Invents New Marketing Gimmicks

FDA Launches Probe into Infant Formula Makers’ Health Claims

Liquid Gold: Even Neil Patrick Harris Has Trouble Getting Donor Breast Milk

 

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Image credit: bradeyolin on flickr

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38 comments

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8:12AM PDT on Oct 12, 2011

Noted!

3:49AM PDT on Sep 13, 2011

thanks

3:46AM PDT on Sep 13, 2011

may the best formula win (mother's milk)

1:38PM PDT on Sep 6, 2011

formula??? Made by those big companies that give backhanders to the governments. The less we use of those, and the more we get by on our own, the better. Breastmilk was good enough for generations, why have people suddenly decided they're ABOVe mothering their kids.

Read more: http://www.care2.com/causes/formula-bidding-wars-competing-to-feed-americas-babies.html#ixzz1XCsu70Gi

7:52AM PDT on Sep 6, 2011

thanks!

11:02AM PDT on Sep 3, 2011

Most infant formulas are made with soy. The manufacturers forget to tell that 74% of all soy grown in the USA is gnetically modified; animals eating GMO soy are much less healthy and are sterile by the 3rd generation. Cows secrete a substance in their milk called IGF-1 (insulin growth factor), a known tumor promoter; cows vaccinated with the bovine growth hormone so they will poduce more milk (most cows in the USA) will give as much as 1,000 times more IGF-1in their milk. Just goes to show that mother's milk is best.

6:05AM PDT on Aug 29, 2011

I duel fed my baby and put him on cows milk by one. I think there is of course more benefit with breastfeeding but thank god for formula! I heard they are close to mimicking breastmilk in formula very soon. I tried many formulas with Joe and liked Heinz, it was the only one not oily, and smelt and tasted pleasant, is baby's taste ever considered in these things? No! Most are not even sweet, and a mother's milk is very sweet. Where ever there is money to be made there will be battles to be the leader.

12:38PM PDT on Aug 28, 2011

Of course the formula makers want to push their products. Have you ever seen what they cost? I believe that mother's milk is the best way for babies to start out. They will get a better immune system and other major things that they need from the milk. Can the formula duplicate that? I am aware that there are babies that are allergic and need goat's milk, but their situation is very different from the majority. Let's not let them tell us what to do. We mothers must do what we feel is best for our children.

8:09AM PDT on Aug 28, 2011

Canada's way seems good. Thanks Annie!~

8:23PM PDT on Aug 27, 2011

Oh gosh, I think this is not an easy thing to decide in general. I appreciate the research, but is all very overhwhelming.

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Disclaimer: The views expressed above are solely those of the author and may not reflect those of
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