130,000 tons New Zealand infant formula exports to world, 2021
0 tons New Zealand infant formula exports to U.S., 2021
A cautionary tale this spring, as White House officials and Congress consider hopes and plans for supply-chain “reshoring,” “resilience,” and import management: In the U.S., dairy vies with sugar as the most tightly policed trade product. According to the White House, 98% of formula in the U.S. is locally manufactured from milk from American dairy cows. The remaining 2% is mainly from Mexico, otherwise, about 2,000 tons come from Ireland, 1,300 tons from Chile, and 600 tons from the Netherlands. The result is a plausible claim to be America’s most completely on-shored, “post-neoliberal,” localized supply chain.
New Zealand, meanwhile, is (likely) the world’s most dairy-centered country. It is second only to Uruguay in cows-to-people ratio; first in the world for total dairy exports; and second to the Netherlands as an infant formula exporter, sending 130,000 tons per year to China, Australia, Hong Kong, Southeast Asia and other destinations.
New Zealand has a lot of formula. With American stores suddenly short of it after the recall at the U.S. plant in Sturgis, Mich., we don’t have enough. Here, though, is what grocery store managers hoping to restock with New Zealand formula would need to do:
(1) Fit your purchase, by weight, within an annual global quota limit of “4,105 tons”* “other dairy products.” Most of this is already filled by formula and other non-cheese products from Ireland, Chile and the Netherlands; and in any case, to apply you would need to USDA quota regulations as follows: “A person may annually apply for a nonhistorical license for articles other than cheese or cheese products (Appendix 2) if such person meets the requirements of paragraph (b)(1)(ii) of this section.”
Paragraph (b)(1)(ii) in turn, related to purchases “where the article is not cheese or cheese product,” says you must be:
“(A) The owner of and importer of record for at least three separate commercial entries of dairy products totaling not less than 57,000 kilograms net weight, each of the three entries not less than 2,000 kilograms net weight;
“(B) The owner of and importer of record for at least eight separate commercial entries of dairy products, from at least eight separate shipments, totaling not less than 19,000 kilograms net weight, each of the eight entries not less than 450 kilograms net weight, with a minimum of two entries in each of at least three quarters during that period;
“(C) The owner or operator of a plant listed in the most current issue of “Dairy Plants Surveyed and Approved for USDA Grading Service” and had manufactured, processed or packaged at least 450,000 kilograms of dairy products in its own plant in the United States; or
“(D) The exporter of dairy products in the quantities and number of shipments required under (A) or (B) above.
“(2) Succeeding in this, you must make sure your supplier meets the Food and Drug Administration’s rules for labeling, ingredients, and preparation, which FDA inspectors verify factory-by-factory. Reasonable in itself, though New Zealand’s child health and food-borne illness statistics compare quite well to America’s.
“(3) Pay a 17.5% tariff. (Or a much higher one, “$1.035/kg + 14.9%”, if you’re trying to buy product that exceeds the quota.)”
In practice, at least on short notice, no one seems able to do all this. So the fully on-shored, non-global supply chain turns out to be very brittle. With the Sturgis factory down and import quotas already filled, there’s no alternative, the shelves quickly go bare, and Air Force planes fly around the world trying to scrape up whatever they can find in Europe. A tactful comment from Jan Carey of New Zealand’s Infant Nutrition Council:
“I think it does show weakness in their policy. … We can speculate that [this crisis] might make the Food and Drug Administration consider why they make it so difficult for, other entrants to come into the market. Why can’t they make it a bit easier to get it in? We have such fantastic products in New Zealand, our products are highly regulated under the Food Standards code for Australia and New Zealand and they meet all of the nutritional requirements of an infant.”
What do we draw from this? Probably a lot of lessons for formula policy specifically. Also, a case study in “localized” supply chains with tight controls over sourcing, which may have some general relevance.
* Mexico is outside this limit with essentially unlimited rights under NAFTA and its successor the USMCA, and provided 12,000 of the 16,800 tons of formula entering the U.S. last year. Canada, in theory, gets a bit more under the USMCA than it did under NAFTA, but hasn’t used it.
We don’t have enough
The FDA explains its regulatory system.
… and announces some easing of import rules.
… while the USDA scrambles to find formula for WIC (Women, Infants, and Children) program users.
… and the Air Force ferries back 35 tons.
President Biden announced actions to address the formula shortage.
They have lots
The U.S. Department of Agriculture examines the New Zealand dairy industry, with data on infant formula production and trade.
New Zealand’s Infant Nutrition Council on formula shortages in the U.S.
And New Zealand government’s child health and safety stats.
Formula trade policy
Tariff rates from U.S. International Trade Commission, the Harmonized Tariff Schedule. See Chapter 19, heading 190110, for infant formula.
Apply for a “dairy import license” from USDA, here.
… but read up on the regulations first.
And also…
“If you want to scare a room full of [economists], talk about breastmilk” — UC-Davis’ Kadee Russ on inadequate U.S. support for breastfeeding moms.
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.
Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.
Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank ProgressiveEconomy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.
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