U.S. officials acted this week to ease a nationwide shortage of baby formula. But none of the moves will create immediate relief for parents scrambling to find stocked shelves. And none fully address the underlying flaws of the more than $4 billion U.S. formula industry, in which business and government depend on one another to keep the country supplied.

Baby formula is one of the most tightly regulated food products in the country. That makes the barrier to new entrants high, and few brands have emerged as challengers to Similac and Enfamil, made by Abbott Laboratories and Reckitt Benckiser Group, respectively, since the two entered the market in the 1950s. Abbott and Reckitt were responsible for roughly 80% of infant and toddler formula sales in the U.S. last year, according to market-research firm Euromonitor.

Regulations also limit international brands from entering the U.S. from other countries.

The federal government is the product’s biggest buyer, via the Women, Infants and Children supplemental nutrition program, which provides formula at no cost to families. The program’s exclusive sales contract system ensures that in each state, one of the major formula brands has the majority of market share.

The result is a marketplace with little competition and little flexibility, making it vulnerable when something goes wrong.

The supply chain for nutrition for our babies “is far more fragile than I think anyone would ever realize,” said Ron Belldegrun, founder and CEO of new formula maker ByHeart.

It took over $40 million and five years to open the company’s infant formula factory, which began production eight weeks ago, he said, and millions more were spent on research and development, clinical studies and a host of other Food and Drug Administration requirements.

Baby formula first became scarce on store shelves in early 2020, as the Covid-19 pandemic and lockdowns disrupted supply chains. Reckitt has faced shipment delays, as well as longer lead times for some raw materials and packaging, according to company officials.

Then, this February, Abbott halted production at its biggest factory—responsible for one-fifth of U.S. formula—and issued a voluntary recall while food-safety regulators investigated a possible deadly contamination. The company said Monday that it reached an agreement with the FDA to reopen the Sturgis, Mich., plant. But it has said it would take two weeks to restart production, then six to eight weeks after that before new formula would hit store shelves.

On Wednesday, President Biden invoked the Defense Production Act, which will require suppliers to send ingredients to infant-formula makers before other customers.

The White House also directed government agencies to use Department of Defense commercial aircraft to pick up from overseas infant formula that meets U.S. standards. On Thursday the administration said it had approved the first shipment—equivalent to up to 1.5 million 8-ounce bottles of hypoallergenic formula for children with medical needs—from Switzerland and is working to identify aircraft to fly it to Indiana.

Formula makers and retailers have said it could take months for supplies to fully recover as U.S. manufacturers face limits to ramping up production and challenges remain in getting the formula to the right places.

Katharine Watkins, who lives in Platte Woods, Mo., said she contacted her governor’s office after struggling to find formula for her 10-month-old daughter, Birdie. Birdie threw up after trying new formulas, so Ms. Watkins called her parents for help finding Birdie’s preferred brand, and they called their friends, too.

The Abbott baby-formula facility in Sturgis, Mich.

Photo: Sylvia Jarrus for The Wall Street Journal

“I’m grasping at straws,” Ms. Watkins said. “The thought never crossed my mind that I would go to the store and not be able to find formula.”

State exclusives

The Agriculture Department’s WIC program has deepened the hold that major manufacturers such as Abbott have over formula sales, in effect reducing the number of brands on offer.

About half of the baby formula sold in the U.S. is purchased through the WIC program, according to the Biden administration. Under the program, which is federally funded but administered by states, states award exclusive sales contracts to a single formula manufacturer in exchange for discounts.

WIC program participants are required to use their vouchers for formula made by the winning manufacturer, dramatically increasing that company’s market share in a given state, while also boosting sales to non-WIC consumers because stores tend to stock and display the WIC brand.

Abbott has contracts with 34 states to supply Similac for WIC, according to the USDA; 10 states work with Reckitt for Enfamil; and six work with Nestlé SA, which makes Gerber products.

Due to the large portion of formula bought by WIC participants, stores offer WIC brands more shelf space and better product placement, according to the USDA. Participating stores are required to keep a minimum amount of the WIC formula brand in stock, and because smaller grocery stores have limited shelf space, those stores may stock the WIC brand exclusively.

Many hospitals have begun mirroring the federal program, contracting with just one formula manufacturer to get bulk discounts, said Steven Abrams, an infant-nutrition expert and professor of pediatrics at Dell Medical School at the University of Texas at Austin. While WIC’s design helps keep costs down for taxpayers, Dr. Abrams said it can exacerbate shortages in the event of supply-chain problems by offering a single WIC brand dominance in a given state.

Lawmakers have proposed changes to WIC to prevent future shortages, including requiring formula manufacturers to outline in their WIC contracts a contingency plan in the event of supply disruptions. The legislation, which awaits President Biden’s signature after passing in Congress this week, also gives the USDA expanded, permanent authority to offer waivers for WIC recipients to purchase a wider variety of formulas in a crisis.

Some consumer advocates say Congress and the White House waited too long to act, and that recent measures don’t address the longer-term, structural issues in formula production and infant nutrition.

“This has been a wake-up call to the systemic problems we have,” said Kristin Rowe-Finkbeiner, CEO of MomsRising, an advocacy group for mothers and families.

Government and industry officials say they have been working to alleviate the shortage since February, when the USDA initially allowed for flexibility in the WIC program and manufacturers, including Reckitt and Nestlé, began shipping more formula to fill the gap left by Abbott.

Barriers to new competition

Beyond Abbott and Reckitt, other companies have had limited success breaking into the baby-formula market. Nestlé had a nearly 10% market share in the U.S. last year, according to Euromonitor, while store brands, such as Target’s or Walmart’s brand, made up about 5% and Danone SA, the owner of Happy Baby products, had a roughly 1% share.

Parents generally don’t switch formulas unless a baby isn’t responding well, and the makers of Similac and Enfamil have decades-old marketing programs that cultivate relationships with healthcare providers and send formula samples to new parents, helping maintain their dominance, doctors said.

A 1980 law governing infant formula established high regulatory hurdles, beyond typical FDA requirements for other foods. Manufacturers seeking to create new formula brands must submit to the FDA detailed explanations for how their products are developed, studies regarding the nutrients included, details of quality-control measures in the manufacturing facility and more. The FDA then inspects the facility, observes the production process and collects samples for nutrient and microbiological analyses, the agency said.

Ms. Watkins prepared a bottle of formula for Birdie on Thursday.

Photo: Katie Currid for The Wall Street Journal

The FDA has struggled with a backlog of submissions for new formulas, extending the timeline for approvals, according to consumer advocates. The agency estimates it received 31 applications last year and reviewed 22, according to the FDA’s 2021 budget, which doesn’t indicate if the applications were approved.

Meanwhile, the U.S. formula market has seen less investment than other industries because demand has stagnated, as U.S. birthrates have dropped and rates of breast-feeding have risen in recent decades, said Lyman Stone, director of research for Demographic Intelligence, a forecasting firm that specializes in births and works with formula manufacturers including Abbott and Nestlé.

New entrants in the market have focused largely on specialty formulas, such as those that meet particular dietary, nutritional or medical needs, Mr. Stone said.

John Wallingford, a former formula executive at Wyeth Nutrition and FDA scientist who now consults with formula makers, noted that large formula manufacturers in the U.S. also make higher-profit medical devices and healthcare products. “Companies that manufacture infant formula have to struggle to get investments for upgrading or building a new facility because they’re competing with dollars that will go to other, higher margin products,” Mr. Wallingford said.

Regulatory hurdles also mean little formula comes into the country from abroad, although the U.S. eased some rules this week. The U.S. typically produces about 98% of formula consumed domestically, according to the FDA. Some formula is imported from Mexico, Ireland and the Netherlands, the FDA said, though some shipments are subject to strict FDA labeling and other requirements.

Infant formulas typically contain elements of cow’s milk plus vegetable oil and various vitamins and minerals. The American Academy of Pediatrics recommends that infants under about 6 months old consume only breast milk or formula.

The FDA this week said it encouraged overseas manufacturers to apply to ship their formula to the U.S. The agency will conduct a review to assure quality control and safety.

Some U.S. families order European formulas from third-party vendors, though this practice has prompted safety concerns, as U.S. consumers may not be aware if foreign products are recalled. U.S. Customs and Border Protection officers last year seized hundreds of cases of infant formula arriving from Germany and the Netherlands that the government said violated FDA import safety regulations.

Demand shifts

Formula manufacturers have been particularly hard hit by trucking shortages during the pandemic, said Demographic Intelligence’s Mr. Stone. Because baby formula is a bulky, relatively low-price product by weight, formula makers’ bids for truck space are less competitive than producers of consumer electronics or other goods.

The supply shocks have been intensified by recent shifts in demand for formula, Mr. Stone said. Demand for baby formula has increased in recent months as U.S. birthrates ticked up slightly last year while breast-feeding rates have seemed to decline, he said.

From the start of this year through May 8, U.S. formula sales by volume rose 5.9%, according to market-research firm IRI. For several years leading up to the pandemic, sales volume of formula had been flat or declining. In 2020, it started increasing again, IRI said.

Dr. Abrams said some 80% of U.S. women breast-feed immediately after delivery, but that by the time children reach the age of 1, between 70% and 90% will receive some formula. The shift is largely driven by social and economic factors including short, unpaid or nonexistent maternity leaves and lack of lactation support, and lower-income women are especially restricted in their choices around breast-feeding.

Specialized formulas for infants and children with severe allergies, intestinal failure or metabolic disorders have been especially constrained during this crisis, said University of Texas’ Dr. Abrams. The formulas are produced in smaller quantities because they have fewer potential buyers and aren’t big moneymakers for manufacturers. These amino-acid based formulas make up less than 1% of formula sales, according to IRI.

The crisis hit home months ago for Emma Ibrahim, when the specialty formula she feeds her 2-year-old daughter, made by Abbott, disappeared from store shelves. Ms. Ibrahim offered another brand to her daughter, Mariam, who eats through a feeding tube due to a complex intestinal disease. Mariam responded with vomiting and diarrhea, forcing doctors to boost her dosage of an intravenous food that carries risks of liver damage and infection, Ms. Ibrahim said.

Ms. Ibrahim said she felt she had no choice but to keep feeding her daughter the recalled formula while she waited for approved supplies to be back in stock. “It’s insane. It feels like a dream,” said Ms. Ibrahim, who lives in Chicago. “This is a first-world country. Why did we not have a backup plan?”

Corrections & Amplifications
Ten states work with Reckitt for Enfamil for their WIC programs, and six work with Nestlé SA, which makes Gerber products. An earlier version of this article incorrectly said 11 states worked with Reckitt and five worked with Nestlé. (Corrected on May 20.)

Write to Jesse Newman at jesse.newman@wsj.com and Annie Gasparro at annie.gasparro@wsj.com