Infant formula: CMA sets out concerns & solutions

Infant formula: CMA sets out concerns and potential solutions

CMA interim report outlines concerns regarding the infant formula market - all of which appear to be contributing to parents paying over the odds.

Following a deep dive into the sector, the Competition and Markets Authority (CMA) has issued an interim report detailing a number of concerns. These relate to:

·    the unintended consequences of the regulations designed to support important public health goals

·    a lack of timely, clear and impartial information for parents and carers about formula

·    companies' responses to regulations around marketing - and how this impacts their pricing

·    limited competition on formula prices in shops

The report also outlines several potential options for addressing these issues, such as giving parents better information earlier and reshaping regulations. The CMA is seeking feedback on these options, and the issues outlined in the CMA's interim report, ahead of publishing its final report in February 2025.

Interim findings

Regulation and pricing

Regulations play a key role in the market, supporting important public health goals including not to discourage breastfeeding. This includes strict rules around the advertising and labelling of infant formula. However, the CMA is concerned that some aspects of the regulations have had unintended consequences, contributing to consumers paying higher prices.

For example, regulation dictates that companies cannot promote infant formula, including price reductions or deals, so as not to discourage breastfeeding. As such, companies rely heavily on other ways to distinguish their products, such as brand-building and marketing.

Manufacturers appear to signal the superiority of their products in ways which are difficult for parents to meaningfully assess - for example, terming their formula 'advanced' or saying it is based on scientific research. This is done in the context of regulations, which include a ban on making health and nutritional claims on infant formula and restrict its advertisement, making it difficult for manufacturers to differentiate their products. It also risks diluting the important public health message that all infant formula meets nutritional needs.

Due to limited incentives to compete on price, the CMA has provisionally found that - unlike in many other grocery categories - there is little pressure on manufacturers or retailers to shelter customers from increases in manufacturing costs, which have largely been passed on quickly and in full. When combined with brand loyalty and the essential nature of the product for many families, parents have been shouldering the increasing price of formula for several years.

Choice of infant formula

The CMA's consumer research has found that parents often choose a formula for the first time in vulnerable situations - often in hospital immediately after birth - and frequently without access to clear, accurate and impartial information needed to make an informed decision.

Decisions around infant formula also come with a high amount of pressure, as parents naturally want to do what is best for their baby. This can lead to parents actively choosing a more expensive product - assuming a higher price means better quality. This is despite NHS advice that "It does not matter which brand you choose, they'll all meet your baby's nutritional needs, regardless of price".

Parents often rely on shortcuts - such as recommendations from friends and family - when choosing a formula, and brand reputation plays an outsized role in decision-making.

Regulation and advertising

Regulation dictates that the labelling and presentation of infant and follow-on formulas be 'clearly distinct' from each another. This seeks to prevent confusion between products and ensure infant formula is not indirectly marketed via follow-on products.

However, the evidence reviewed by the CMA to date shows that similar branding and labelling - including similar colour palettes, fonts and imagery - are frequently used across ranges of infant and follow-on formulas, making a brand's products look very similar.

It appears that the advertising and promotion of follow-on formula have been supporting sales of infant formula because of this. Manufacturers' promotional and marketing spending on follow-on formula and growing-up milks is high; this is where brands can differentiate themselves from rivals as the advertising restrictions in place for infant formula do not apply.

Sarah Cardell, Chief Executive of the CMA, said:

"This is a very important and unique market. We're concerned that companies don't compete strongly on price and many parents - who may be choosing infant formula in vulnerable circumstances and without clear information - opt for more expensive products, equating higher costs with better quality for their baby.

"We have identified options for change, but now want to work closely with governments in all parts of the UK, as well as other stakeholders, as we develop our final recommendations. Importantly, any changes must continue to support regulation that ensures all formula gives babies the nutrition they need to thrive - as well as supporting governments' aims on breastfeeding.

"We'll now be consulting on our provisional findings and the options we've put forward to get important insight from government and stakeholders - all of which will feed into our final recommendations early next year."

Recommendations

The CMA is setting out a number of potential options that could help improve the sector and reduce costs for parents. These include:

·    Information and supply in healthcare settings: providing parents with clear, accurate and impartial information, including on the nutritional sufficiency of all infant formula products, and possible measures to reduce the influence of branding - for example, providing parents with a wider range of formula options to choose from or using standardised infant formula packaging in hospitals.

·    Information and price promotion in retail settings: providing clear, accurate, and impartial information, including on nutritional sufficiency at the point of sale; and incentivising competition on price by potentially permitting prices and price reductions to be publicised.

·    Clarifying, monitoring and enforcing existing regulations: including clarifying how existing regulations apply online, and strengthening the relevant authorities' role so that they must approve the packaging of all infant formula products before they are placed on the market. The relevant national authorities are Department for Health and Social Care, Scottish Government, Welsh government, and Foods Standards Agency in Northern Ireland.

·    Strengthening labelling and advertising rules: including measures to moderate the role of brand awareness in decision-making in this highly regulated market. This could be done by reducing the incentive and ability of manufacturers to engage in brand-building behaviour - for example, by requiring entirely different branding for infant and follow-on formula or implementing stricter thresholds for certain types of on-pack messages.

·    Backstop measures (not currently recommended) - price controls and public provision: to reflect the acute issues some parents face due to high formula prices, the interim report sets out a number of more significant interventions that governments could, in principle, make with the aim of bringing down prices directly - such as price caps.

For a full list of potential remedies, see Section 8 of the CMA's interim report. Interested parties, including stakeholders, consumers and the industry at large, can make submissions to the CMA on the potential remedies outlined in the interim report.

Feedback can be provided by 29 November 2024 and will feed into the CMA's ongoing review as it moves towards its final report - expected in February 2025.

More information is available on the CMA's Infant Formula Market Study case page.

Statistics

·    Prices for baby formula in the UK rose by 18-36%, depending on the brand, over the 2 years between December 2021 and December 2023.

·    The infant formula market is highly concentrated: just 3 firms account for over 90% of supply.

·    Evidence reviewed by the CMA shows that parents could make a saving of up to £300-500 over a baby's first year of life by switching to a lower priced brand.

Notes to editors

1.   The CMA has set out that submissions on the interim report can be made for a 3-week period - final submissions must be made by 29 November 2024. During this period, the CMA invites feedback on its provisional findings and the options outlined to address these emerging concerns.

2.   Infant formula is formula milk for babies that is suitable from birth and is the focus of the CMA's market study. The study is also considering follow-on formula, which is a substitute for infant formula for babies ages 6 to 12 months and, to the extent that they impact on how the markets for infant and follow-on formula operate, milks marketed for children aged over 12 months of age.

3.   The CMA's role is to investigate how markets work, including the role of consumers, industry and government, and to look at all aspects of how markets could function better for those that use them. The CMA's investigation is not focused on what feeding method parents choose.

4.   Regulations regarding the infant formula sector are put in place by government and are monitored and primarily enforced by local authorities. The Advertising Standards Authority also has a role in enforcement of its UK Advertising Codes (known as the CAP and BCAP Codes). Nutrition law is an area of devolved competency, and responsibility for legislating in relation to infant formula sits with each of the UK's devolved nations.

5.   The statistic relating to the increase in the price of baby formula is based on the CMA's analysis of the change in the monthly average prices of the major brands' 800g powder infant formula products at Tesco between December 2021 and December 2023.

6.   The statistic relating to savings made by switching to a lower priced baby formula is CMA analysis based on a baby being exclusively formula-fed from birth to 12 months, following the feeding amounts recommended on the packaging; it compares recent prices of the lowest-priced and highest-priced branded infant formula 800g powder.

7.   When speaking of retailers, the CMA means supermarkets and stores that sell formula. When speaking of manufacturers, the CMA means those companies which create formula milk. When speaking of brands, the CMA means the ranges of infant formula with a particular brand name, produced by a particular manufacturer. 

8.   Market studies examine why particular markets may not be working well for consumers. They may lead to a range of outcomes, including making recommendations to government to change regulations or public policy.

9.   The CMA will be engaging closely with the UK and devolved nations governments as it progresses its market study.

10. For more information on the CMA's market study process, visit: Market studies and investigations - guidance on the CMA's approach.

11. All enquiries from the general public should be directed to the CMA's General Enquiries team on general.enquiries@cma.gov.uk or 020 3738 6000.

12. All media enquiries should be directed to the CMA Press Office by email on press@cma.gov.uk or by phone on 020 3738 6460.

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