India Breaks the Diaper Monopolists. Why Won’t Americans Step Up?

Yves here. One the one hand, one great virtue of the invention described below that allows small scale manufacturers (as in garage level) to undercut the disposable diaper price-gougers succeeds precisely because it doesn’t rely on scale economies to achieve a substantial cost advantage. On the other, the lack of scale, barriers to entry, patent protection, and sex appeal is why it’s unlikely to get traction in the US, unless frustrated parents band together to buy and operate the machinery on a hobbyist/minimal profit basis.

By Michael Olenick, a research fellow at INSEAD whose recent articles can be found at and Blue Ocean Thinking. Originally published at Blue Ocean Thinking

Bloomberg reports diaper costs were up 14% year-over-yearsince last January and show no sign of slowing down. That same story article details a man spending $300 per month keeping the tuchases of his twin 3-year-old grandkids dry. The New York Timesreports about a man who walked out with diapers and without paying after his bank card was declined. When his photo was circulated by the store, they were criticized and he was heralded as a folk hero.

The reason for diaper inflation is arguably more greed than global supply chain woes. Specifically, a duopoly by Kimberly-Clark and Procter & Gamble controls about 70% of all diapers. It doesn’t matter if people buy Huggies, Pampers, Luvs, or Pull-Ups; the funds all flow to the same two businesses.

A formerly illiterate Indian weaver developed a business model to break the diaper duopoly keeping baby tushies clean and their parent’s pocketbooks solvent.

First, some explaining. There are two types of diapers; cloth and disposable. Cloth diapers are usually handled by a diaper service that takes away the stinkies and delivers clean, bleached cotton at a cost typically slightly more than disposables.

However, many people prefer disposables both for convenience and that they’re less likely to leak. It’s easy to criticize but, having raised two tykes and used cloth for awhile, the disposable crowd has a point. For example, imagine changing a cloth diaper at a shopping mall — assuming anybody goes to those anymore — and carrying the used one home for the diaper service. Yuck. Besides, due to the environmental impact of cleaning cloth diapers it’s not entirely clear if they’re overall environmentally better.

Naturally, the disposable diaper businesses blame the price increase on increasing material costs (never mind their stock buybacks) but, just as naturally, a quick glance at those material costs makes those claims iffy. It’s not that costs haven’t gone up but, rather, material costs are like when you change a diaper and find there isn’t much there. The core ingredient in diapers is a product called fluffy pulp, which is essentially fluffed up tree fibers, plus a small amount of plastic that goes around it and, sometimes, a “super absorbent layer” which is more marketing gimmick than anything.

Fluffy pulp is widely available on Alibaba from China for $850 per ton which Google tells me yields 907,185 grams of pulp. At 13-25 grams per diaper, the cost of the active ingredient per diaper ranges from $.012 – $.023 at today’s presumably inflated prices.

Hold on, you say: there’s also shipping and the whole supply chain fiasco. Correct … at rates long ago negotiated. Besides, because the pulp is a paper byproduct, it’s widely available from Canada and the US. Even if the pulp prices are higher, and they’re paying those prices (rather than long-term prenegotiated rates), we’ll see it doesn’t matter because the impact of an increase on overall costs of goods sold is negligible.

Amazon says Size 2 Pampers are a bestseller. They charge $53.44 for 234 diapers, labeled a one-month supply (a higher estimate than others; diaper banks typically give families 50 diapers per month). At the prices listed above, the material cost for pulp would range from $2.85 to $5.48 plus the plastic to wrap it, ship it, and profit margin. That is, material costs may drive down profit margins slightly but they aren’t what’s driving up diaper prices. Obviously, those companies could absorb the material price fluctuations rather than causing them to leak into people’s food budgets.

At this point, I could and probably should harangue about monopolies but there’s no point; they’re not going away anytime soon. Even if Congress were to call the CEOs of those businesses in and yell at them nothing would happen. We could make demands to break up the diaper duopoly but, even in the unlikely even Congress would go along, by the time the lawsuits ended the tyke in diapers would be a geezer. Sue them? Sure – something may happen in many years but that something is likely a friendlier administration takes over and uses the suits to enter a consent decree protecting the monopolies.

A more sustainable answer might be to leverage an innovation created by Arunachalam Murugananthamis, India’s Pad Man. You can see his invention in the Academy Award winning Netflix documentary Period. End of Sentence.(available free on YouTube) or the Bollywood blockbuster Pad Man. I also wrote a case about himand we spent time talking.

Realizing Indian women would never purchase menstrual pads even if they could afford them, which they couldn’t, Murugananthamis invented a business model and the machinery to encourage the use of pads around India and other developing nations. He sells women-owned businesses micro-factory equipment they use to create pads they then sell or barter to local women. The pads allow girls to remain in school after their menses — when, not long ago, they would’ve been relegated to menstrual huts or fields — and women to own a small business gaining independence from men.

Murugananthamis purposefully uses a capitalist model because he says it best aligns incentives. Although the Netflix documentary talks about raising funds to buy the machinery for a collective, donations are usually used for microloans which are paid back from profits of the pad manufacturing collective to fund more businesses.

“If you depend on money from others, then indirectly you are a beggar. Your hand is always out,” he told me. “I give them dignity and make them into women entrepreneurs. It is amazing to see the transformation that happens. This is the way to help this universe have a new day, not repeat the old days.”

Despite being famous worldwide, Murugananthamis himself lives in a one-room apartment with his wife and children and still hauls manufacturing equipment to rural Indian villages.

Getting back to diapers, the factor that enables Murugananthamis’s business is low-cost fluffy pulp. Indian women buy the raw material, which is even cheaper than the processed prices above, and transform it into pads with his machines. But even bleached and ready to be made into pads or diapers, fluffy pulp isn’t pricey.

There’s no reason small groups of parents couldn’t get together and form a collective to create diapers for their children, assembling the diapers either by hand or with low-tech manufacturing equipment. I’d imagine there are regulations around diaper manufacturing but I’d also imagine they wouldn’t apply if parents were making diapers for their own children.

Besides costing less, parents could choose from the various pulps that work best for their baby butts, balancing ecological concerns with diaper rash. They’d see how much material goes into each diaper and learn about business, like the Indian women and their menstrual pad machines. Plus, it’d be fun. Once a month, somebody could watch the kids while everybody else cranks out a supply of diapers. Call it a playgroup with purpose.

None of this would be especially difficult to get going; a group of parents would need to round up others, find a spare garage, buy some material, and get out the scissors. Once they get a basic design down, somebody can engineer machinery to make the diapers faster though that isn’t necessary to get started.

This post was inspired by a tweet from Matt Stoller. I haven’t written in a while and have been reading about the countless startups getting rich inventing not much of anything. I was finally shocked back to the keyboard by Matt’s tweet combined with the following I found deeply disturbing:

Say what you will about Squid Game, there is value in art beyond the financial rewards, not to mention the jobs created filming and distributing the series. Yet, the modern beasts of finance have reduced everything into money. If you can’t spend it, their reasoning seems to go, there’s no intrinsic value. This is a cynical, terrible mindset.

When combined with articles about the surging price of diapers, I realized it was time to write again. The world doesn’t need another chatbot, and the real value of crypto is seriously iffy, but we do need art and affordable diapers. It’s time to realign both economic incentives and our personal values to make that happen.

My personal focus lately has been on subtractive theory with the behavioral economists — the economic ideas that less is often more — and both Murugananthamis pad factories and my diaper ideas seem to embody the concept.

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  1. Zamfir

    I don’t know about the US, but around here you can easily buy diapers from other manufacturers than the big 2. Usually sold under the brand of super markets chains, etc.

    At standard prices, the “premium” diapers are much more expensive, by a factor 2 sometimes. On the other hand, the branded diapers run unpredictable discounts, where they are not much more expensive than the non-branded diapers . It’s a textbook price discrimination strategy – price-insensitive buyers are selected out by the artificial hurdles and pay a large mark-up, while price-sensitive buyers jump through the hoops to get a fairly competitive price. That strategy allows them to combine a lower-margin volume business with a high-margin premium business.

    This implies that the production costs of the branded diapers are similar (or even lower) then the non-branded diapers. The brand manufacturers still run a profit at the discount price, while the non-branded diapers are never discounted as strongly.

    The branded diapers are genuinely better, as far as I can tell (and as parent of young kids, I tried…). It’s not just marketing fluff. You can literally pour more water in them before they feel wet, or before they start to leak. My wife and I are geeks, we ran tests. We did blinded real-world tests as well – one parent puts on the diaper, the other parent has to decide when you have to change them, then you write down which brand it was. The branded diapers last longer. I’ve cut them open, the internal structure of the more expensive diapers is clearly different. At full price, it would not be worth it to us, but at discounted prices, we feel that the remaining markup is worth it to get a particular brand. Lots of parents apparently end up at the same decision.

    That’s the problem of scale, isn’t it? They can make a better product at the same production costs, then structure the market to milk that advantage. It also makes me skeptical that home production can offer similar quality – if it was easy, the generic versions would be closer. On other products, they are close or even better than branded products.

    1. John Zelnicker

      October 21, 2021 at 9:20 am

      If the diaper business is anything like other consumer products sold under store name brands, both the premium name brands and the generics are made by the same companies.

      It’s likely that they could upgrade the generics at a minimal cost, which just shows how much monopoly rent is being extracted from the people.

      1. Zamfir

        This might be different in the US, but here that’s not the standard situation, especially not for the big ones like P&G. They might run various brands of their own, some of them cheaper and deliberately lowered in quality, but they will not easily give brand control to a super market. And the other way round – super markets prefer to deal with suppliers who do not have a strong brand of their own, because that gives them a stronger negotiation position.

        You might find some smaller companies with struggling brands of their own, who have quietly switched most of their production to super market brands to keep volume.

  2. Cetra Ess

    My mother rinsed soiled cloth diapers in the toilet then washed them in a sink by hand, I don’t think diaper service existed in Southern Ontario in the 60’s-70’s. I can see why disposable diapers may be much needed if access to toilets or water was an issue, but I honestly struggle to see the value otherwise…especially since they take up so much of landfill, aren’t recyclable. But you would essentially have to convince people to use Murugananthamis’s model, people who won’t use the rinse in toilet wash in sink method, would prefer to send diapers to landfill. It might be you’d need to overcome their laziness? How does one do that?

    1. Anon

      Re: struggle to see the value

      My wife suffered from severe post partum depression after we had our child. Anything that makes the job easier can be a lifesaver, and I do mean that literally. It’s not always possible to tell what makes the difference between success and failure, but I know it was a near thing in our case, and I used to worry constantly about what factors might tip the balance.

      So while I agree with pretty much all your other points, I was still very grateful that we had them.

  3. Carla

    “diaper banks typically give families 50 diapers per month” — Eeow, that’s awful. Those poor little babies and tots, stuck in wet and/or soiled diapers most of their young lives. The “diaper rash” — which would certainly be caused by urine and stool covering that tender skin for hours — must be ferocious. I would think 150 diapers a month would be the bare (not punning here) minimum.

    1. Greg

      Urrrrgh I hadn’t read that part, that is horrific! We went through 8-10 a day in the first few weeks, stabilised at 6 a day from there. We were changing nappies a little more aggressively because cloth isn’t as good at wicking away moisture, although the modern synthetic re-useable liners do a pretty awesome job at mitigating that. Also when you’re washing them daily anyway, it’s easy enough to err on the side of more frequent changes rather than risk any skin irritation.

      I’m going to assume the banks assume that they’ll provide *some* and the parents need to find other sources for the other three quarters. I hope so. Oh I really hope so. So gross.

  4. Samuel Conner

    I wonder if the waterproof components of current disposables could be made of polymers with biodegradable linkages. My intuition is that disposables are at some point going to have to be made compostable and will be recycled in that way.

  5. Greg

    “Cloth diapers are usually handled by a diaper service that takes away the stinkies and delivers clean, bleached cotton at a cost typically slightly more than disposables…It’s easy to criticize but, having raised two tykes and used cloth for awhile, the disposable crowd has a point. For example, imagine changing a cloth diaper at a shopping mall — assuming anybody goes to those anymore — and carrying the used one home for the diaper service. Yuck. Besides, due to the environmental impact of cleaning cloth diapers it’s not entirely clear if they’re overall environmentally better.”

    Sorry this is weird American service culture showing. Diaper “services” are relatively new and expensive for rich people who want to feel like they’re doing something for the environment. Cloth diapers for most people in the world are not via an environmentally disastrous delivery service. It is 100% clear that re-useable diapers made of appropriate fibres are way more environmentally friendly that plastic disposables, particularly if they are rehomed after children age out of them.

    Secondly, wet bags are a pretty old concept. Newer ones are not only plastic lined (50s tech) but usually made out of tightly woven synthetic fabrics that insulate smell pretty effectively. Some are even double skinned, if you want to go top end.

    We’ve raised one child in cloth nappies with another on the way, and it has not been as onerous as this sheltered person believes it must be.

    And saying this as a dad, I suspect there’s a certain amount of solutions being designed by someone who hasn’t changed a diaper going on here. Might be a different story if the author were female.

  6. annie

    big benefit for cloth diapers over absorbent disposables, according to son, is that being in a squishy cloth diaper makes child conscious of having peed or pooped and being uncomfortable makes for earlier toilet training.

  7. MrBrokenRecord

    Dumb question – given the recent info I saw that claimed OECD countries spend on average about $14k for childcare per child, vs $500 in the US; does anyone know if other OECD nations also subsidize the cost of diapers?

  8. Michael McK

    I don’t think the fluff counts as a “byproduct of paper”, it is just highly refined pulp not transformed into paper. The industry calls such stuff “specialty pulps” and several years ago I read (probably in ‘Pulp and Paper’ or the ‘TAPPI Journal’ about a mill specializing in such pulp in, IIRC, Maine which supplied, among other customers, adult diaper manufacturers.

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