I’m convinced the commodities index should include companies that manufacture toilet rolls and now, baby formula. Seemingly rarer than hen’s teeth, the powder gold is causing major headaches for parents across the US. The limited supply isn’t solely due to COVID related logistics issues, but rather the result of a sluggish government response and wider market issues.
The saga began last October when a whistleblower notified the US Food and Drug Administration (FDA) that major formula manufacturer Abbott, responsible for one-fifth of all US baby formula production, was operating under unsanitary conditions. Allegedly the manufacturer used profits to line shareholder’s pockets rather than replacing failing equipment which resulted in four infants sick with life threatening bacterial infections from which two died. Consequently, formula made in the facility had to be recalled and the FDA forced its closure in February.
The limited supply has seen parents driving all over to find the formula they need for their babies, as if parenting wasn’t hard enough. Fast forward three months and the US government has FINALLY decided to step in and help.
So why has the shut down of one major manufacturing plant caused such a drastic supply squeeze?
The baby formula market is massively distorted largely due to the monopoly that two manufacturers hold on the market. Both Abbott and Reckitt have been operating this way since the 1950s thanks to the FDA categorising baby formula as a pharmaceutical, rather than a food. And pharmaceuticals are highly regulated. In fact, ByHeart was the first new formula manufacturer to gain FDA approval in 15 years. The approval came with a hefty price tag of almost USD $200 million which went towards research, development and clinical studies.
Seizing the opportunity to gain market share is factotum company Jatcorp (ASX: JAT). The Company specialises in “Australia-China trade, focussed on growth within the Australian health and wellness consumer goods export industry,” but they’ve also been known to dabble in real estate, amongst other things.
JAT is working with the Australian Trade and Investment Commission to fast track their infant formula to market in the US. Their application for key in-house brands will be handed over to the FDA for approval for sale in the coming weeks. The Company is positive that they can meet demand and ease the burden to parents following recent factory upgrades.
Their products will be distributed through already established distribution networks in the US, pending FDA approval.
Despite amping up manufacturing capabilities, JAT still has export and logistics issues to contend with, where COVID has notably impacted the worldwide movement of goods. Additionally, Abbott has since resumed production, albeit at a smaller scale. The recent news and plight of parents has prompted calls for the government to review its classification of baby formula as a pharmaceutical, meaning more contenders could enter the market under less stringent regulations.
Yesterday Aussie formula brand Bubs (ASX: BUB) got a shoutout from the President of the United States via his Twitter account where he mentioned that 4.6 million bottles of Bubs’ formula will be flown into the country. The news saw shares rise to a high of $0.68, a 48% from Friday’s close.
Although delayed, the government’s attention to the issue will hopefully see more families able to access a basic necessity for their little ones, and eliminate future supply issues.
Samantha Freidin is a business journalist at Emerald Financial whilst also completing a Masters of Marketing and Digital Communications at Monash University.
Latest posts by Samantha Freidin (see all)
- Parkinson’s UK backs Pharmaxis with $5 million to slow the onset of incurable disease with ‘ground breaking’ trial - September 1, 2022
- How this company is developing medtech to support Indigenous community health - August 22, 2022
- A round of ap-paws for PharmAust, changing the ruff prognosis for dogs with lymphoma - August 17, 2022
Leave a Comment
You must be logged in to post a comment.