WASHINGTON -- The Federal Trade Commission has subpoenaed records of all leading manufacturers of infant formula, suspecting that they collaborated to raise prices.
"This is a top-priority, front-burner investigation," said Kevin J. Arquit, director of the commission's Bureau of Competition.
Infant formula is a key ingredient of the food packages given to low-income families under the Special Supplemental Food Program for Women, Infants and Children, or WIC. The program, acclaimed as one of the nation's more effective welfare programs, accounts for one-third of all sales of infant formula in the United States.
"State WIC programs are on a fixed budget," Mr. Arquit said in an interview last week. "We have not yet concluded that a violation of the law occurred."
When infant formula prices go up, the cost of a WIC food package increases, fewer people can be served and some people have to be removed from the rolls, "so there is real consumer injury," Mr. Arquit said.
The allegations were made by state welfare officials and consumer groups, which complain that the three companies have raised prices in a uniform way for more than a decade.
The biggest makers of infant formula are Ross Laboratories, a division of Abbott Laboratories; the Mead Johnson Nutritional Group, a unit of the Bristol-Myers Squibb Co.; and Wyeth-Ayerst Laboratories, a division of the American Home Products Corp.
Ross Labs makes Similac infant formula, Bristol-Myers makes Enfamil and Wyeth-Ayerst makes Nursoy. These companies account for about 90 percent of the infant formula market in the United States. At all three companies, spokesmen confirmed that subpoenas for information about how they set prices had been received.
The companies deny they colluded.
NB The commission's resolution authorizing the subpoenas said the
purpose of the investigation was to determine whether any of the infant formula companies "have engaged in or are engaging in unfair methods of competition in violation of Section 5 of the Federal Trade Commission Act," which prohibits such anti-competitive practices.
The commission has also sent subpoenas to the American Academy of Pediatrics and to two companies with small shares of the domestic market for infant formula: the Carnation Co., a subsidiary of Nestle S.A., and the Gerber Products Co. Spokesmen at those companies confirmed that the subpoenas had been received.
The WIC program serves 4.4 million people a month, including nearly one-third of all babies born in the United States.
Dennis H. Bach of Iowa, president of the National Association of WIC Directors, an organization of state and local officials, said, "Wholesale prices of infant formula seemed to go up in lockstep over the last 10 years."
"There has been minimal competition," Mr. Bach said. "That's the experience of most states. There are few companies in the market, and in a sense it's a captive market. It is widely recognized that if an infant is not breast-fed, it needs to be fed commercial iron-fortified formula in the first several months of life."
The last round of price increases occurred in April and May, when the major manufacturers raised wholesale prices by 8 percent to 9 percent.
Sen. Howard M. Metzenbaum of Ohio, chairman of the Judiciary Committee panel responsible for antitrust policy, said the investigation was "a breath of fresh air."
Robert C. Gelardi, executive director of the Infant Formula Council, a trade association for the manufacturers, asserted that "it is a very competitive industry even though there is a small number of players in it."