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A formula for failure

There is a shortage of baby milk in the US. Few fears are more primal than that of not being able to feed your baby. Parents across America are stressed and angry. (Some people, however, find the situation amusing.) One of the many reasons to like unbridled capitalism is that by reducing scarcity it reduces conflict. Whenever there is a shortage people become angry when they see others getting what they cannot get.

“Texas governor criticises Biden administration for giving baby formula to migrant children”, writes the Independent. There are several things worth discussing there. It would be unconscionable not to give formula to children who need it, but the knowledge that “Uncle Sam will provide” probably is a factor attracting illegal immigrants to the US, including children both accompanied and unaccompanied. The consequences of that can be horrible.

However the thing that struck me most about this story was tucked away as background information:

A recall of formula produced at a Michigan manufacturing facility – along with a Covid-19-fuelled supply chain issues – has made formula difficult for families to find, or subject to purchase limits in stores, after manufacturers shut down and warehouse stocks were recalled but not replaced. US formula is largely monopolised, with stringent regulations on imports; shortages from the recall are compounded by demand among a handful of companies relying on the same fragile supply chain.

President Biden has called on federal agencies to help address the shortages, including easing rules that manufacturers must follow for their products to be eligible under the Special Supplemental Nutrition Program for Women, Infants, and Children, or WIC, which supports low-income families.

Few dare argue when “stringent regulations on imports” and “rules that manufacturers must follow” are introduced under the cry of “We must protect the children!” Yet now that the children are being protected half to death, these measures seem astonishingly hard to remove.

Update: Eric Boehm of Reason magazine has more detail: America’s Trade and Regulatory Policies Have Contributed to the Baby Formula Shortage

Thanks to strict FDA regulations and oppressive tariffs, America is already largely dependent on only domestic suppliers for infant formula: America exports far more than it imports every year.

That’s exactly the situation the economic nationalist want in all industries—and we’re now seeing exactly how that can go wrong. Cutting off foreign trade and protecting domestic suppliers can make a country more vulnerable to unexpected supply problems, not more resilient.

24 comments to A formula for failure

  • Lee Moore

    I suspect the regs are less to do with “protect the children” and more to do with “protect the farmers” and “protect the agribusinesses that contribute to our campaign funds.”

    Hong Kong went through a period of milk formula shortage a few years back (may even still be going on) when HK was still fairly free market. IIRC they blamed mainlanders for sneaking into HK and snapping up all the milk formula. (Cos the well off mainlanders understandably didn’t trust the Commie milk formula, rightly presuming it was made largely from recycled tyres and highly toxic colouring chemicals.)

    But that didn’t really make sense as HK didn’t have any tariffs or import controls so they could just have imported more. I never quite got to the bottom of it, but New Zealand seemed to have a role in it. Apparently most of the milk formula came from there, and they were having some kind of problem. Cows spending too long in front of the telly watching the rugby, I guess.

  • Don’t women who have given birth make baby milk themselves kinda for free or is this some lost art?

    Maybe the American Indians can teach the lefty Democrats that which was lost?

    Fauxcahontas remembers, surely?

    😕

  • Natalie Solent (Essex)

    John Galt,

    Breast feeding is harder than people think, and once you stop doing it you can’t start again. America might be about to rediscover the concept of the the wet nurse, but even with the internet, that’s a hard thing to arrange at short notice.

  • Alas, I will never be a real woman Natalie.

  • JohnK

    Don’t be silly John. If you say you are a woman, you ARE a woman.

  • laz

    The magic term is “Regulatory Capture”. As seen in car manufacture or farm equipment.

  • bobby b

    I don’t think this was capture. More like FDA sloth and incompetence followed by bureaucratic panic. There were four infant deaths from cronobacter sakazakii across the US. The FDA finally inspected the Sturgis Abbott plant – the BIG formula plant – and indeed found cronobacter – but a strain that was NOT implicated in the deaths. But they ordered a sweeping recall and destruction for which no one was prepared, and they’ve been too internally conflicted and confused to allow Abbott to fix and reopen.

    Stupidity, not malice, I think.

  • Fraser Orr

    Why are these regulations hard to reduce? Because there are regulators whose job depends on there being regulations to regulate. Moreover regulations are a spectacularly useful way for big companies to keep annoying little competitors from honing in on their turf.

    The question one has to ask about this is “Who is going to lose their job over this disaster?” and the answer is obviously either “no one” or “the traitorous bastard who let the public know what was going on.”

    @JohnK
    Don’t be silly John. If you say you are a woman, you ARE a woman.

    I was thinking about this sort of thing in a different context, and was reminded of Adam Savage’s saying from Mythbusters “I reject your reality and substitute my own.”

  • Bill L

    @Fraser Orr

    Why are these regulations hard to reduce? Because there are regulators whose job depends on there being regulations to regulate. Moreover regulations are a spectacularly useful way for big companies to keep annoying little competitors from honing in on their turf.

    I believe we have a winner.

  • Nicholas (Unlicensed Joker) Gray

    Why don’t the Americans buy from us here in Australia? Chinese visitors were impressed by the high quality of our products, including milk. Now that Xi no longer loves Australia, our good milk, condensed from human kindness, is available to all!

  • Given the COVID totalitarianism visible in Australia the only difference seems to be whether we’d prefer our totalitarianism Koala flavoured or Panda flavoured.

    Gonna pass.

  • bobby b

    Nicholas (Unlicensed Joker) Gray
    May 14, 2022 at 9:55 am

    “Why don’t the Americans buy from us here in Australia?”

    The US Food and Drug Administration has determined that your labels have funny accents.

  • Snorri Godhi

    On the other hand, plenty of evidence has emerged this year that independence in food and energy is highly desirable.

  • Ferox

    The progressive half of the country can help out during this shortage by simply having their babies identify as well-fed.

  • Lurker

    @Lee Moore

    I lived in HK during that powdered milk shortage (still here) and I can tell you that it was absolutely 100% due to “Taxed Good Customers” from Mainland China, because I saw it with my own eyes. Several years back a few dozen (? maybe a few hundred who knows the real truth) babies in China were poisoned by contaminated baby formula. As a result, mothers in China decided that they only wanted to buy imported formula. Of course this put in jeopardy several large government and army connected local Mainland manufacturers. The government responded with import duties (which are substantial to begin with) that made formula from abroad too expensive to buy and supported local manufacturers. As you correctly noted, HK has no tariffs on these goods. As a result, starting around 2014-2015 or so, a whole new arbitrage industry was created where young people would get short term visitor passes to enter HK where they would fill up suit cases of baby formula (amongst other items). The streets of every town in the New Territories (area closer to the border) were so crowded with them sometimes people would go out after dinner at night to do their shopping because you literally couldn’t walk the sidewalks during the day they were so congested (not an exaggeration, I personally experienced it). At the border to re-enter Mainland China, even though as a passport holder I would go on a separate line, the thousands of “Sui Fau Hak” (Taxed Goods Customers) were so thick, it would take an hour to get past the crowd to the proper line. An interesting result was that price of baby formula (and any other good that these arbitragers targeted) as you might guess went up in HK to approach the taxed price in China. Most of the powdered milk was sold in bulk out of “Drug Stores” (for those from the US imagine a store the size of a corner bodega but carrying many of the things that a neighborhood CVS might carry). I have either lived in or visited Yeun Long (one of the biggest “towns” in Hong Kong with about 600k people) every year for the last 25 years. Before 2015 or so, there were one or two drug stores on each block where people could go for prescriptions, but also paper towels, detergent, household cleaners and, yes, baby formula. After 2010, the majority of shops in the town where drug stores. The number quadrupled overnight and shop rents (my sister-in-law is a real estate agent) went through the roof. All of this ended with COVID when the border was shut down. Sadly, with post COVID inflation, prices never managed to return to normal.

  • bobby b

    “Cutting off foreign trade and protecting domestic suppliers can make a country more vulnerable to unexpected supply problems, not more resilient.”

    “Can” is doing a lot of heavy lifting in Boehm’s article. The US could use some domestic protection in chip manufacturing, and Europe could use some in oil production.

  • Lee Moore

    Thank you, Lurker.

    I have visited HK quite often, though not since Covid, and I certainly noticed mainlanders in the drug stores buying up milk formula, armed with suitcases. I seem to recall the drug stores limiting purchases to two large tins per person. And I got the explanation of the dodgy mainland formula as the explanation for the demand shock from local HKers.

    Incidentally, HK is a real eyeopener on the thorny subject of ‘racism”. Local HKers contempt for mainlanders in toto would certainly be called “racism” if it were directed at another racial group. It’s obviously based on disapproval of social behaviour, and identifiability as ‘the other” – talking (and shouting) loudly in Mandarin, blocking door entries and passages with suitcases, and generally having sharp elbows – ie not conforming to HK’s somewhat Westernised notion of manners in the public square. Racism is not fundamentally a racist thing, so to speak.

    Anyway, the question is – yes the mainlanders caused a demand shock in HK, but HK is – or was – a famed free market entrepot port; why didn’t supply (aka imports) rapidly adjust to accommodate the demand shock and profit further from it ? Unlike the US and its regs, we can’t blame “the goverment.” Perhaps it just turns out that the supply chain even in HK isn’t quite so easily and quickly adjusted as we might think. The free market may seem like magic but it isn’t actually magic. Those price signals merely suggest to humans what might profitably be done. The humans still have to get round to doing the necessary things.

    Which reminds me – all this supply chain disruption, not just in milk formula, is a good illustration that just-in-time supply chains are wonderful when the sun is shining but not so good when it starts raining. And we can probably blame “the government” (as well as ignorant public opinion for supporting the government) for converting the parable of the wise and foolish virgins into the parable of the scalping hoarders and the innocent needy. If those who keep costly excess stocks, against unexpected shortage, in the hope of scalping profits on those rare occasions when shortage arises, are vilified and punished by the law for their foresighted and socially valuable prudence, then temporary shortages will be more painful. Also do not become dependent on Russia for your gas 🙂

    As my gout is playing up, I will merely add that the five wise and five foolish virgins do not constitute the whole voting public. There are at least five more gals who are up the spout, with the boyfriend over the hills and far away. The foolish virgins are not at the foolish extreme, they are what is known as “the average voter”. So do not look for much sense from governments democratically sustained by the powerful voting bloc of {foolish virgins + up the spouters}

  • Nicholas (Unlicensed Joker) Gray

    What Covid-19 totalitarianism? Living here in Australia, I have never been harassed by the police, nor had to give drops of blood. Nor have my voting rights been restricted at all. I did not want to get, nor pass on, Covid, so I complied with shopping restrictions. I live in NSW, not Victoria, and I believe matters were worse there. Can any Victorians comment, if Premier Andrews allows you to?

  • Fraser Orr

    Lee Moore
    mainlanders caused a demand shock in HK… why didn’t supply (aka imports) rapidly adjust to accommodate the demand shock and profit further from it?

    I think this is a really interesting question, and of course without a great deal of research I can’t answer definitively, but I’d like to hazard a guess — and a kind of unusual one. The way the price would normalize is that the demand would push up prices as people competed for limited supply and that price increase would incentivize the increased import or production to satisfy it, which would, of course, push the price back down again.

    However for this to work, the increased supply has to be able to get to the purchasers, but in HK because it is tiny, and, as mentioned from the personal experience above, the streets were packed with vendors and it was impossible to walk down the sidewalk, the actual ability to provide the enhanced supply was severely restricted by the physical layout of the city, then the compensating mechanism that would normally bring down the price was not nearly as effective.

    Don’t know if that is the reason, but I thought it was an interesting speculation.

  • Lee Moore

    🙂 It’s always impossible to walk down the sidewak in HK.

    It may be that because milk formula is a special type of good (customers are interested in provenance, ie whether it’s proper quality controlled Western stuff rather than mislabelled commie chemical crud) the main HK distributers and retailers decided that increasing supply a bit, but not enough to dent the nice new high prices, and reap extra profits that way, essentially by cashing in on their brand names, was more profitable than investing in new stores for lower margin high volume business. Since the PRC could have ended the trade at any time simply by confiscating the milk formula at the border, investing a lot in new stores with the “Watsons” brand name might have been a bit risky. Might have had to close em again, with write offs, three months later.

    Although HK is (was?) a very free market, it’s not a picture postcard illustration of “perfect competition.” The big HK conglomerates are pretty good at protecting their businesses by erecting such barriers to entry as they can manage – ie their businesses extend to distribution as well as retail, and services. And, as you suggest, useable land is already being used by somebody, and a lot of it is owned by the same big conglomerates.

    Even the high theory of free markets accepts that established players can run blocking patterns on new entrants, at least in the short term, without needing to run to the government for regulations.

  • Fraser Orr

    Fwiw, it is worth pointing out that the insuficiently capacious sidewalks are one of the few things provided by the HK government.

  • Dmm

    🤣🤣🤣

  • Kevin

    One of the biggest suppliers, New Zealand owned, was caught putting plastic into it to ‘fortify’ it, which led to the death of some babies.

    The directors of the company in China were given the death penalty for it.

  • Lurker

    @Lee Moore (sorry for the late reply, been busy of late)

    – Some big Supermarkets (I remember definitely that 百佳 Park n Shop did) restricted purchases; but very few arbitrageurs bought from there. All the drug stores would not only not restrict supply, they would take orders straight from China through WeChat and would have the canisters bundled up by the dozen waiting for the mule to arrive. Yes, HK sidewalks are always terrible (govt supplied infrastructure, so what do you expect) but the suitcases really made them impossible to navigate.
    – Regarding why the free market didn’t solve things: (1) Fraser Orr has the answer; there is only so much storage capacity in HK and there was a seemingly endless demand coming out if China (I remember hearing, at one point, that 1 out of every 10 people in HK at any given time was a mule – but that was from relatives and in Cantonese, a dialect that is famous for loudness and exaggeration); (2) to a certain extent, there was no problem to solve. Anyone who wanted baby formula could find it at Watsons or Wellcome, but at more that double the price it had been.
    – Regarding racism: Honkers and Mainlanders have a love hate relationship. To HK people, even the village boys who live in the New Territories, who tend to be traditionalists predisposed to support the Mainland, were annoyed at the “piggish” behavior (I think here they were unfair – very few people, Mainlander or not, would be prone to treating their surroundings with respect if they are there for 1 day for purely commercial reasons) and inflation that resulted from the situation. But people from Mainland China are just as bad on the other side; when I would go to China (I speak Mandarin as well as Cantonese) when people found out that I was from HK (I am not Chinese), to a person, they would go off on tirades about how HK people were arrogant and favored England over China. In a strange reflection of French attitudes, they really hated HK people not speaking Mandarin (or at least not speaking it well), which is funny because no one in Mainland China outside of Beijing proper or Nanjing speaks standard, proper, unaccented Mandarin.

    As a final note, the situation had actually began to ease even before COVID, because the Mainland government was worried that the resentment toward the arbitrageurs was part of what was fueling the protests. So they began to enforce the law at the border (people are only allowed to buy goods in Hong Kong and bring them back to China for personal consumption) and were fining and confiscating goods. That, along with the protests that actually did scare some people in the Mainland from coming, shut down the trade in 2019 before COVID hit.

    This was an interesting conversation that allowed me to reminisce about pre-COVID / Omnicrom Hong Kong. Thanks!

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