Formula shortage the result of U.S. protectionism, expert says


Another cargo jet laden with European infant formula will arrive Wednesday in the United States as the White House scrambles to ease a debilitating shortage – a response some fear could lead to even emptier shelves in Canada as well.

Canada depends on U.S. producers for its own supply of formula, and with the Biden administration again using emergency wartime measures to meet the moment, trade and food security experts alike are worried about the knock-on effects.

And while the shutdown in February of a key manufacturing facility in Michigan catalyzed the crisis, those same experts say its foundations lie in how both countries have jealously defended their dairy sectors in an era of managed trade.

“I was always concerned from Day 1 about the situation,” said Sylvain Charlebois, a professor of management and food security expert at the School of Public Administration at Dalhousie University in Halifax.

“And I actually think that the White House is much more proactive than Ottawa is in terms of trying to actually move products from Europe to North America.”

Health Canada has already issued approvals for the use of European formula in Canada, but the government has not yet taken any steps to expedite getting those products onto Canadian soil, he added.

Charlebois said the only lasting fix will be for production to resume at Abbott Nutrition’s massive facility in Sturgis, Mich., one of the largest in the country, which has been idle since February amid concerns about bacterial contamination.

The company expects the plant to be operating again within two weeks, but warns it will take up to two months before its output is fully back on store shelves.

“Once that happens, well, I think that the American market will be prioritized over the Canadian one for sure. It’s going to take a while before Canada gets out of this mess,” Charlebois said.

U.S. protectionism

The roots of that mess – which Prime Minister Justin Trudeau suggested Tuesday is not as bad as headlines might suggest – can be traced to a persistent strain of U.S. protectionism, interlaced with Canada’s own jealous guardianship of domestic markets.

“This is fundamentally a dairy product, and so it’s caught up in the whole ugly mix of supply management, and the whole ugly mix of U.S. dairy export politics,” said Eric Miller, a Canada-U.S. expert and president of the D.C.-based Rideau Potomac Strategy Group.

When the two countries sat down in 2017 to negotiate what became the U.S.-Mexico-Canada Agreement, then-president Donald Trump was determined to win wider access to Canada’s dairy market while also keeping supply-managed Canadian rivals at bay.

“The primary goal of the U.S. on USMCA when it came to dairy in general was to ensure more market access for U.S. products into Canada, and to ensure minimal to no competition from Canadian products in the U.S. or in third markets,” Miller said.

Canada ultimately made relatively modest concessions in the deal, known north of the border as CUSMA, lifting import tariffs on the equivalent of about 3.6 percent of the Canadian market.

And while Canada is home to a major infant formula plant in Kingston, Ont., it is a Chinese-owned facility that sends 100 percent of its output overseas for domestic use in China – one that runs on Canadian labour and subsidized dairy products.

“The cow milk, as it is in the U.S., it’s partially subsidized – that makes things even worse,” Charlebois said. “The plant itself was subsidized by the Canadian taxpayers as well.”

Handful of players

Brian Deese, director of the White House National Economic Council, acknowledged in interviews over the weekend that the formula market in the U.S. is dominated and controlled by only a handful of major players.

Expansion is unlikely to happen in either country: a steadily declining birthrate across North America means it’s not exactly a growth market, and trade restrictions make it all but impossible to sell overseas.

“It’s not free and open trade, it’s managed trade,” said Adam Taylor, founder of Export Action Global, an international trade consulting firm.

“I’m a free trader, obviously. Free and open trade is the best way to ensure a lot of these products remain plentiful to everybody. You can add it to the list of things we’re now seeing in real time that there’s a shortage of.”

Meanwhile, President Joe Biden’s “Operation Fly Formula” is proceeding apace; the first shipment arrived Sunday in Indianapolis, while Jill Biden, the first lady, is scheduled to meet the next arrival Wednesday at Dulles International Airport.

Biden has also invoked the Defense Production Act, a 1950s-era law passed at the outset of the Korean War that’s been getting a workout since the onset of the Covid-19 pandemic, to ensure U.S. manufacturers have expedited access to necessary ingredients and materials.

Not likely to share

Given the expense and effort to date, not to mention the obvious political ramifications with midterm elections looming in November, don’t expect the U.S. to be anxious to share, Miller suggested.

“When the U.S. invokes the DPA, they’re not going to want to see 30 percent of their supply going north of the border.”

To hear Trudeau tell it, it may all be moot: Canada has been monitoring supplies and “working closely” with the U.S. to make sure there is enough to go around, he said Tuesday in Vancouver.

“The reality is, we’re still looking like we’re fine on baby formula,” Trudeau said.

“There are a few challenges around some more specialized formulas for particularly vulnerable kids, but we are confident that the work that we’re doing to secure supply from elsewhere, and to ensure that Canadians have those options, is going to be fine.”

Health Canada also raised another red flag Tuesday, this one in the form of sunflower oil, a key ingredient that’s been caught up in the conflict between Ukraine and Russia, together the source of half the world’s supply.

The agency said it plans to extend a temporary scheme, currently set to expire at the end of June, to import more baby formula from Europe and the United States to bolster domestic supplies.