A high concentration of production in very few companies or economies can negatively affect the flow of goods during supply chain shocks.
As an example, the World Trade Organization (WTO) Secretariat pointed to the shortage of infant formula in the United States in 2022, which led to the temporary closure of the largest infant formula factory and resulted in severe shortages of this product in the domestic market.
Can the WTO regulate these cases? The WTO is not directly responsible for regulating market concentration or competition in terms of the concentration of economic power in the hands of a small number of firms.
The WTO focuses more on the facilitation of international trade, the negotiation of trade agreements and the resolution of trade disputes between member countries.
Concentration of production
Infant formula regulations had led the United States to rely almost exclusively on domestic production to supply the U.S. market, causing excessive concentration of production that exacerbated the effects of the shock.
In response, the United States took ad hoc measures to facilitate the importation of infant formula that increased imports by a factor of over 300 over a period of several months and helped meet local demand while the factory remained closed, demonstrating that international trade could provide a solution to the domestic supply crisis.
More generally, the WTO Secretariat noted that in recent years there has been an increase in the concentration of production at the global level, with a limited number of exporters now producing around 20% of all traded goods.
Supply chains
While international trade can provide solutions to supply chain bottlenecks at any time and help reduce these risks, this contribution is greatly reduced if there is insufficient diversification of suppliers and production is concentrated in only a few economies.
Infant formulas in the United States are subject to specific standards and must meet requirements set by the Food and Drug Administration (FDA).
These formulas are designed to provide infants with the nutrients necessary for growth and development during the first months of life.