The state hospital’s practice of providing a single brand of formula milk to newborns is being challenged after warnings it could drive up costs for parents in the long term.
Baby milk advertising is banned in Malta to protect breastfeeding, giving whatever brand wins Mater Dei hospital’s procurement process sole access to thousands of trusting new parents.
In October the health authority’s Central Procurement and Supplies Unit (CPSU) awarded the tender to Pemix, which imports Aptamil, and had submitted the lowest bid. This was done even though, just a month earlier, the Office for Competition criticised the current procurement process and recommended a multi-supplier model.
Rival infant formula suppliers Vivian Corporation appealed before the Public Contracts Review Board and requested the cancellation of the tender and the award so that the procurement process would be reset. Alfred Gera & Sons, another supplier, have also filed submissions in support.
The current process allows the winning bidder to bid at an abnormally low price because they would know that, once they get introduced to parents in hospital, they secure a winner-takes-all position in the market, the Office noted.
Unique market
The problem lies in the nature of the infant formula market that consists of a handful of suppliers, totalling six in 2019 when the office started investigating. Any supplier awarded the hospital tender to provide formula to newborns is automatically placed at an unfair advantage – a “winner-takes-all” position – since they gain access to the bulk of the market.
According to the 2018 World Breastfeeding Trends Initiative’s Malta report, 64.4 per cent of mothers breastfeed within the first hour of birth, dwindling to 9.6 per cent exclusively breastfeeding in the first six months.
Since the vast majority of babies (over 4,000 a year) are born at Mater Dei Hospital, any mother who does not breastfeed is introduced to the formula brand provided by the hospital. As a result, the parents perceive the brand as medically superior.
The Office for Competition noted that, as identified by studies, unless the infant has an adverse reaction to the formula, parents are very unlikely to change brand. This results in a lock-in situation.
As a compounding factor, this happens in a unique market landscape that does not permit advertising of formula milk – to protect breastfeeding as the best option, in line with World Health Organisation recommendations.
A unique market that does not permit advertising of formula milk – to protect breastfeeding
Driving out competition
The office stressed that while breastfeeding remained the priority and ought to be protected, the current procurement method was creating a situation where competition was struggling. In the long term this could mean that the competition could be driven out of the market.
“Due to the interdependency of the private and public markets, it could be that few suppliers will remain in the private market in the long-term,” the Office for Competition said. “This could potentially lead to less consumer choice and higher prices, both hampering consumer welfare,” it added.
In the conclusion, reached following research as well as public consultation, the Office recommended a multi-supplier system that would expose parents to all brands, at once or on rotation, and allow healthy competition in the market.
The office noted that, even though the CPSU was not in breach of Public Procurement Regulations, there were “overriding public interest considerations at stake” – protecting the market was in the public interest of the consumer and, secondly, the CPSU may face higher prices in future if the competition was driven away.
Battle for fair competition
In the past, the hospital used to provide a range of brands to babies. The brands were purchased by direct order. Then, in 2012, the CPSU started issuing tenders. Since 2014, the tender has been won by Pemix, which imports Aptamil, which always offered the cheapest prices.
Over the years, several proceedings have been initiated before the Public Contracts Review Board by various players in the market contesting the tender adjudication process. On two occasions the review board ordered the reissuing of the tender after agreeing that the winning bidder’s price was abnormally low – sometimes as low as 0.01c per unit.
This was something also flagged by the Office for Competition, which found this “demonstrates the operators’ understanding that any financial losses incurred in the primary market (hospital) can be easily recouped and more than offset by the lock-in effects with the private retail market.”
In another case, the review board threw out the appeal, a decision upheld by the Court of Appeal that, however, said the CPSU ought to listen to the Office of Competition’s recommendations to protect the market. Despite this, and the recent recommendation issued by the Office for Competition, in October the tender was once again awarded to the cheapest bidder.
Now, in the latest development, infant formula supplier Vivian Corporation has appealed before the Public Contracts Review Board and requested the cancellation of the tender and the award so that the procurement process is reset. Alfred Gera & Sons, another supplier, filed submissions in support a few days after the appeal.
A health ministry spokesperson said: “Mater Dei policy regarding infant feeds is to encourage breastfeeding. However, ready-prepared formula milk is available on demand. The current tender adjudication is being contested at the Public Contracts Review Board and therefore further comments at this stage might prejudice the case.”