At first it sounds like the dream of any new business trying to succeed in a market ruled by just a few companies: a wave of fresh customers, eager for your product because their usual supplier has temporarily stopped production. At Bobbie, an infant formula startup founded by two San Francisco moms, such a scenario meant its customer base doubled within a week. But in an industry where that faltering manufacturer controls 40 percent of the market, it is difficult, if not impossible, for Bobbie and others to meet the sudden demand. It leaves a gap “that even all of the other collectives coming together are unable to fill,” says Bobbie cofounder and CEO Laura Modi.

The ongoing shortage of powdered baby formula in US stores has been caused in part by pandemic-related snags in the global supply chain and high inflation. But it’s also been exacerbated by one company’s product recalls. Abbott Nutrition, the largest supplier to the US market, shut its largest plant in February and recalled three brands due to contamination concerns. This has left supermarket shelves empty across the country—70 percent of infant formula was out of stock in the third week of May, up from 24 percent in January, according to retail data provider Datasembly.

Amid the nationwide shortage, desperate parents have been crossing states and scouring social media for supplies, or making DIY formulas, which can be dangerous to babies’ health. “It is shocking that the US baby formula market is so vulnerable, that the closure of a single factory throws the entire country into a food crisis,” says Kevin Ketels, who researches and teaches supply chain management with a focus on health care at Wayne State University. 

This particular food crisis has its roots in the industry’s structure as well as federal policy. Just three companies—Abbott, Mead Johnson, and Nestlé (which sells its products under the Gerber brand)—control about 90 percent of the US market. And that market encompasses the majority of babies in the country. By the time they are 3 months old, more than half of infants are at least partially fed using formula. At 6 months old, three-quarters of babies consume formula.

Large and small manufacturers have responded to the shortage by ramping up production, but Modi says it’s not as simple as finding other factories to step in. “We’re not talking about toilet paper or masks. We’re talking about a very complicated product that requires an immense amount of safety and rigor.” Even when Abbott’s currently offline plant in Sturgis, Michigan, is up and running again, the company says, it will be another six to eight weeks before its infant formula is available in stores. So other interim solutions are needed.

Faced with mounting political pressure, President Biden has invoked a wartime measure to give formula makers first priority from ingredient suppliers and has ordered military-contracted planes to fly in products from overseas, in what the White House calls Operation Fly Formula.

The first batch of formula for infants and children with special needs landed in Plainfield, Indiana, on May 22; it came from Nestlé’s facilities in Switzerland and the Netherlands. British company Kendal Nutricare has also been quick to take advantage of the US Food and Drug Administration’s move to ease rules on foreign imports and will airlift tens of thousands of cans of cow’s milk formula from its stockpiles next month.

Typically, only 2 percent of infant formula is imported, mainly from Mexico, Ireland, and the Netherlands, because of high import tariffs and the FDA’s stringent regulations on nutritional values, labeling, and inspections. Kendal Nutricare also produces formula from goat’s milk, which, if shipped, would be a first for the US—goat’s milk is not approved for infants there.

While it’s difficult to predict how the federal government and industry will prevent a formula shortage from happening again, it is quite possible there will be a shake-up of the players involved. “It seems that more companies will be allowed to sell because of this emergency. And it is certainly possible they will be allowed to sell in the future,” says Ketels, adding that foreign suppliers who already meet the FDA’s nutritional standards (and who have significant production capacity) make ideal candidates.

But smaller domestic companies will also want a piece of the pie—and in a way, they already have it. In the past three months, ByHeart and Bobbie, two young companies that sell their products online directly to parents, have seen a surge in demand. New York–based ByHeart entered the market just a few weeks after the Abbott recalls; it has had 15 times the number of new customers it projected for the year.

Bobbie, which launched in 2021 and whose “European-style” formula is made with milk from Organic Valley farms, has doubled its subscriber base to over 70,000. European formulas are especially popular with parents who value organic ingredients (which tend to be more common in European formulas) and want to cut out added sugars, such as corn syrup; parents are willing to pay a premium to import them illegally.

However, due to limited production capacities, both Bobbie and ByHeart have made a tough call and have stopped accepting new customers. “Our only job right now is to give our own customers the peace of mind and reassurance that the supply we are making we can continue to serve to them,” says Modi.

But even if these young American companies managed to increase production further, they wouldn’t necessarily be able to grab a bigger share of the market in the long term. That’s because the “Big Three” of Abbott, Mead Johnson, and Gerber are tied to a welfare program known as Women, Infants, and Children (WIC), which provides low-income families with free formula. About half of all babies born in the US are eligible for it.

The program allows the Big Three to bid on the right to become the sole provider of infant formula for participating families by offering steep discounts to a state. “When a company controls the WIC program, it controls the entire marketplace in that state,” says Steven Abrams, a professor of pediatrics and nutrition science at the University of Texas. The families select WIC-approved infant formula from the store shelves and present their electronic benefit card at the register.

From the government’s perspective, the program is cost effective, but it inadvertently creates a de facto monopoly in each state, because a contract can also mean more favorable shelf space in stores. This in turn means more regular sales. “The formula is everywhere, which is why the companies basically give it away to the WIC program, because the non-WIC is what makes the money,” says Abrams. Abbott holds WIC contracts with 49 states, territories, and Native American tribes, according to the US Department of Agriculture. In light of the recalls, WIC participants are allowed to switch brands of formula, but it took awhile for their electronic benefit cards to be reprogrammed and work in stores.

Abrams says WIC contracts could be opened in the future to smaller companies to take a share, or the large companies could be required to pair with another company in an exclusive bid. As for the general market, he believes that in the longer term more European products could end up on US shelves. “I think there will be a really healthy competition between the American brands with this sort,” says Abrams.

But for Modi, a mother of three, the FDA needs to update its nutrition standards, which have been in place since the 1980s. For families, that could mean being able to choose from multiple suppliers in the future. “This is not just about how we get a company like Bobbie to fit into the current system; the way I see it, the entire structure needs to change.”