Baby-formula makers focus of federal price-fixing probe

December 31, 1990|By New York Times

WASHINGTON -- The federal government is investigating allegations of price fixing made against makers of baby formula used extensively by state programs.

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 accounts for one-third of all sales of infant formula in the United States.

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," said Kevin J. Arquit, director of the Federal Trade Commission's Bureau of Competition. The FTC is conducting the investigation.

The WIC program serves 4.4 million people a month, including nearly one-third of all babies born in the United States.

The allegations of price fixing were made by state welfare officials and consumer groups, which complain that the three major suppliers have raised prices in a uniform way for more than a decade.

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."

The last round of price increases occurred in April and May, when the major manufacturers raised wholesale prices by 8 percent to 9 percent.

The FTC 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 Arquit.

"State WIC programs are on a fixed budget," Arquit said last week. "We have not yet concluded that a violation of the law occurred."

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.

The commission's resolution authorizing the subpoenas said the purpose of the investigation was to determine if 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.

Sen. Howard M. Metzenbaum, D-Ohio, chairman of the Judiciary Committee panel responsible for antitrust policy, said the investigation was "a breath of fresh air" following what he called limp enforcement of the antitrust laws by the Reagan administration.

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."

In July, 145 members of Congress signed a letter urging the manufacturers of infant formula to reduce prices. "The companies are eating up the funds that Congress earmarked for infant nutrition," said Rep. Ron Wyden, D-Ore.

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