CMA infant formula report highlights provisional market concerns

Competition and consumer law experts Angelique Bret and Tadeusz Gielas, of Pinsent Masons, were commenting on an interim report (30 pages / 364 KB) on the ongoing infant formula and follow-on formula market study.

The CMA found that there is “limited competition on formula prices in shops”, meaning that manufacturers and retailers have little incentive to absorb increases in manufacturing costs, which are instead passed on to consumers “quickly and in full”.

The CMA has also raised concerns about “unintended consequences” of regulations. Regulations designed to support public health goals, such as promoting breastfeeding, have resulted in consequences for parents and care givers, according to the report. These regulations restrict the advertising and promotion of infant formula, leading to companies focusing on brand-building and marketing strategies that can be difficult for parents to assess.

The report further highlights a lack of “timely, clear and impartial information” for parents and care givers, among others. It suggests that lacking information about infant formula risks parents making decisions based on brand reputation or price, rather than the nutritional needs of their babies.

The report goes on to outline several potential solutions that may be used by firms across the industry. One important recommendation is to provide parents with better information from the outset when deciding on a baby formula product, and that this is appropriately tailored for both healthcare settings, such as hospitals, and in retail settings such as supermarkets. This may involve clearer labelling on products and more accessible information about the nutritional content of different formulas.

The CMA also recommends a range of measures to encourage more competition among manufacturers and retailers involving the way formulas are marketed and sold – making it easier for firms to compete in the market and potentially to help encourage new market entry. Additionally, the CMA report suggests that regulations could be reshaped to allow for more competition on price while still supporting public health goals, such as allowing some forms or promotion or discounting that do not undermine breastfeeding.

Gielas said: “The CMA’s interim findings highlight how strict government regulation of infant formula, intended to achieve positive health outcomes, may inadvertently be suppressing price competition.  They also suggest that manufacturers may be leveraging the advertising and branding of their follow-on formula products to cross-promote their infant formula products despite regulatory restrictions.”

“It will be interesting to see which of the CMA’s wide-ranging provisional recommendations are ultimately adopted.  At present the CMA is not recommending price controls as a preferred option, recognising that such measures could lead to unwanted consequences, such as reduced incentives for producers to lower prices or to innovate,” said Gielas.

The interim CMA report follows a market study launched earlier this year and is part of the CMA’s wider focus on the cost of living and its impact on essential goods. The market study focuses on the supply chain, pricing, and regulatory framework governing infant formula and follow-on formula with the CMA aiming to create a more competitive and transparent market that benefits both parents and their babies.

The authority is inviting responses to the interim report by 29 November 2024. These responses will be considered in preparation of the CMA’s final market study report, scheduled for publication in February 2025.

Outcomes from the CMA’s infant formula market study will likely have significant implications both from a competition as well as consumer protection perspective in infant and follow-on formula markets. More broadly, the market study is part of the CMA’s wider focus on the Fast-Moving Consumer Goods (FMCG) sector.

For instance, in a separate investigation – under consumer law – involving suspected “greenwashing” in the FMCG sector, the CMA considered whether certain green claims by a major FMCG producer may have been misleading and thus could have breached UK consumer protection rules. However after spending almost a year examining the suspected greenwashing practices, the CMA has decided to close its investigation on administrative priority grounds. 

Bret said: “This outcome is significant because the CMA has limited resources and therefore carefully considers the enforcement cases it takes on against its prioritisation principles. Most of the CMA consumer enforcement actions therefore result in the agreement of undertakings to address the CMA’s concerns and a case closure is relatively rare”.

“It is notable that when using its new direct enforcement consumer law powers under the Digital Markets, Competition and Consumers Act 2024 (DMCC Act), the CMA will have to clearly establish that consumer law has been breached and the relevant legal requirements are met – and that will not be straightforward, particularly in misleading green claims cases,” Bret said.

In another FMCG-focused project, the CMA is also scrutinising loyalty pricing practices by supermarkets, again using its consumer law powers.

As of this winter, the CMA’s pre-existing competition law enforcement powers will be strengthened, and entirely new competition rules for digital markets will be implemented and enforced by the CMA.  From April 2025, the CMA will be able to use its new direct enforcement powers in consumer protection cases – placing CMA-led enforcement of UK consumer law on a par with competition law. 

Bret said “These forthcoming changes will substantially increase non-compliance risk for businesses with the potential for fines up to 10% of turnover for breaches of consumer law.  The CMA’s focus on the FMCG sector and other consumer essentials impacted by cost-of-living pressures may help indicate where the CMA could focus its future competition law and consumer law enforcement efforts once the DMCC Act is fully implemented”.