Megan and all,
There is plenty of research in the GI literature to back up the idea
that cow's milk protein allergy or intolerance (CMPA or CMPI) can
give rise to damaged mucosa and allergy cells in the gut.  I would
absolutely support the mom in making dietary changes rather than
trying formula (which will surely lead to premature weaning, as
without an elimination diet, the CMP in her milk will re-offend when
it is reintroduced).  Continued breastfeeding is the best thing she
can do for her sensitive child, even though it might seem right now
as if her milk is making her baby sick.  A food-sensitive child needs
the protection of mother's milk even more than most children.

Here are some abstracts that may be useful.  I'm certain a little
digging on PubMed will turn up more that specifically address the
issue of allergy cells in the gut.  (I have these particular ones at
hand due to working with several babies who had reflux.)

This one shows that infants can be sensitized to CMP via mother's milk.
J Allergy Clin Immunol 1979 Aug;64(2):122-6  "Immunoglobulin E to
cow's-milk protein in breast-fed atopic children."  Kaplan MS, Solli
NJ.
http://www.ncbi.nlm.nih.gov:80/entrez/query.fcgi?cmd=Retrieve&db=PubMed&list_uids=458055&dopt=Abstract

Another makes the same point:
Acta Paediatr Scand Suppl 1988;348:1-14  "Cow's milk allergy in the
first year of life. An Italian Collaborative Study."
http://www.ncbi.nlm.nih.gov:80/entrez/query.fcgi?cmd=Retrieve&db=PubMed&list_uids=3071078&dopt=Abstract

These authors (below) conclude "Acute reaginic type of CMPI is
favored by early ingestion of formula bottles in breast-fed infants
and by early sudden weaning. Hypoallergenic formula in five cases was
unable to protect infants against further allergic manifestation."
Arch Pediatr 1995 Jun;2(6):526-31  "[Milk feeding of infants and
cow's milk protein hypersensitivity]"  [Article in French]  Ghisolfi
J, Olives JP, Le Tallec C, Cohen J, Ser N.
http://www.ncbi.nlm.nih.gov:80/entrez/query.fcgi?cmd=Retrieve&db=PubMed&list_uids=7640752&dopt=Abstract

These authors found that other foods in addition to CMP were
problematic in 6 out of 6 food-sensitive babies:
Acta Paediatr 1997 Oct;86(10):1042-6  "Multiple food allergy: a
possible diagnosis in breastfed infants."  de Boissieu D, Matarazzo
P, Rocchiccioli F, Dupont C.
http://www.ncbi.nlm.nih.gov:80/entrez/query.fcgi?cmd=Retrieve&db=PubMed&list_uids=9350880&dopt=Abstract


J Pediatr Gastroenterol Nutr 2001 Jan;32(1):59-64  "Vomiting and
gastric motility in infants with cow's milk allergy."  Ravelli AM,
Tobanelli P, Volpi S, Ugazio AG.
http://www.ncbi.nlm.nih.gov:80/entrez/query.fcgi?cmd=Retrieve&db=PubMed&list_uids=11176327&dopt=Abstract

In addition, the mother may find this website helpful while she tries
an elimination diet:  http://www.mspiguide.com/index.cfm   From
personal experience, I can say that cutting out dairy is really not
all that hard once you get used to reading labels.  I avoided both
dairy and soy for many months, and had little problem reworking
recipes to suit my needs.  There are many good rice-milk products
available.  I'd be happy to share more of my personal experience if
you'd like.  (Nutshell version:  two CMPI exclusively bf babies, two
stints on elimination diets for me, both children "grew out of it"
and can now eat dairy themselves in moderation.)

Good luck,
Margaret
LLLL, Longmont, CO

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