Ending WIC competitive bidding could harm millions of women and children

The continuing shortage of infant formula has focused the attention of policymakers and the public on the high level of concentration in America’s infant formula market. Depending on the data source, either three or four infant formula manufacturers control 90 percent of the U.S. market. This market concentration is now a focus of a Federal Trade Commission (FTC) inquiry. 

One issue before the FTC and ultimately before Congress is whether the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) — a federally funded, state-administered program that provides nutritious foods each month to more than 6 million lower-income pregnant and postpartum women, infants and children under age 5 — has helped to foster market concentration. 

Under bipartisan legislation enacted in 1989, state WIC agencies are required to use competitive bidding to determine the source of the infant formula for their state’s WIC program. The manufacturer submitting the lowest bid gets the contract to provide the formula for the state’s program, except for special formulas prescribed for infants with certain medical conditions. Some commentators have assumed that because the company winning a state WIC contract generally gets the best retail shelf space and becomes the largest seller of formula in the state, WIC competitive bidding makes market concentration worse.  

But that isn’t necessarily the case. Competitive bidding also has the potential to reduce market concentration by providing an opening for new or smaller companies to enter the market, win contracts, and, as a result, gain decent shelf space and exposure. 

This is no small issue, as the future of competitive bidding has ramifications beyond market concentration. Competitive bidding has saved WIC an average of $1.7 billion per year in recent years, all of which goes back into the program, enabling WIC to serve about 2 million more women, infants and children each month. That’s nearly one of every three people this highly effective program serves. 

Were policymakers to eliminate competitive bidding in WIC, as some have suggested largely because they assume it’s a major cause of market concentration, these savings would disappear. Unless policymakers then boosted WIC’s annual funding substantially, the program would have to turn away large numbers of eligible people. Meanwhile, the profits of infant formula manufacturers would swell because they could charge full price for the formula they sell through WIC. 

So, would eliminating competitive bidding significantly reduce market concentration? Likely not. The best evidence on competitive bidding’s impact on market concentration is found by comparing concentration levels before and after competitive bidding took hold in WIC. And as great as market concentration is today, it was even greater before WIC agencies began using competitive bidding widely in the late 1980s and early 1990s.  

The two infant-formula giants — Abbott Laboratories and Mead Johnson — then controlled 90 percent of the U.S. market, and three companies controlled 99 percent. Today, Abbott and Mead control about 80 percent of the market, and the top three companies control around 90 percent. The concentration, while still extremely high, is modestly lower than before competitive bidding. In a major study in 2004 — when market concentration was even greater than today — the Agriculture Department’s Economic Research Service found that market concentration did not increase after the start of competitive bidding, and it concluded, “There is no evidence that WIC’s infant formula market program has resulted in a reduction of the number of infant formula manufacturers, thereby lessening competition.”

Moreover, the market for specialty formulas for infants with certain medical conditions is even more concentrated now than the regular formula market — and there is no competitive bidding for those formulas. 

Infant formula market concentration is a longstanding problem. A Senate Antitrust Subcommittee hearing on this matter in 1990 highlighted that in thepre-competitive bidding 1980s, Abbott and Mead didn’t compete on price. Instead, they consistently raised their prices within a few weeks of each other, by almost identical amounts and to almost identical levels, with those price increases far outstripping inflation. 

Policymakers should seek to reduce this market concentration. They should, for instance, allow more competition from foreign-based infant formula manufacturers, which are largely barred from the U.S. market (except during the current formula shortage). That would entail changes in tariff and trade policies on formula and in Food and Drug Administration labeling rules and could be especially important for the availability of special formulas for infants with medical conditions. In addition, certain carefully designed changes in WIC’s competitive bidding rules, such as those in the proposed bipartisan WIC Healthy Beginnings Act to increase bidding transparency, might help more manufacturers enter the market, while other changes — including administrative measures the Agriculture Department unveiled July 18 — can strengthen the system’s ability to avert future shortages. 

But ending competitive bidding would be a serious mistake. It would likely harm several million low-income women, infants and children by shrinking WIC funding and, in turn, denying them the nutritious food that WIC provides, even as the profits of the infant formula giants would soar. And it likely wouldn’t have much effect on market concentration. 

Robert Greenstein is a visiting fellow in economic studies at the Brookings Institution’s Hamilton Project and a former administrator of the Agriculture Department’s Food and Nutrition Service and former president of the Center on Budget and Policy Priorities.