The "fry bread" of the various U.S. Indigenous tribes is indeed a product of, the reservation system. However, much of the folklore surrounding it must be examined more closely. For instance, the U.S. government did not provide powdered milk until well into the twentieth century. In fact commercial production of powdered milk on any scale did not occur in the U.S. until 1904.
Similarly, vegetable oil was not commercially available to the U.S. government or consumers until after 1911 when Procter & Gamble began production of refined, hydrogenated cottonseed oil.
Baking powder was not commercially available until well after the civil war. In the U.S., Joseph and Cornelius Hoagland and William Ziegler developed the earliest commercial baking powder in 1866 and founded the Royal Baking Powder Company. It became the largest manufacturer of baking powder in the U.S. Government contracts didn't come until 1877.
It should be obvious that the ingredients of Indigenous American "fry bread", particularly Navajo "fry bread" came from what the government really supplied. That is flour, water, salt, sugar, yeast (until 1877) and lard. Baking powder may have come after 1877. Powdered milk and vegetable oil weren't available until the 20th century.
In fact, the earliest process in the English-speaking world to produce evaporated milk (and that wasn't powdered) was by William Newton who patented a vacuum process for evaporated milk as early as 1837. In 1847, T. S. Grimwade took a British patent on a vacum procedure that produced a highly condensed bottled milk to which potassium nitrate was added as a preservative (Blyth 1882). The Grimwade process was further refined in 1855 to produce a powderd milk to which sugar and calcium carbonate were added (Blyth 1882, Hunziker 1920). Neither process was commercialized in Britain, and only the condensed milk process was a commercial success in England (Hunziker 1920).
In the U.S. in 1856, after three years of refining a vacum evaporation process, Gail Borden began production of canned condensed milk. His efforts were only successful after forming a partnership in 1857 with financier Jeremiah Wilbank, with whom he founded the New York Condensed Milk Company (later renamed the Borden Company in 1899). They obtained large government contracts during and after the Civil War to produce Eagle Brand Condensed Milk, a brand sold in stores today (Frantz 1951). At the end of the Civil War, a patent pending in 1857 was reissued and finally granted to Borden on 14 November 1865 (Borden 1865). Although his process could produce powdered milk, Borden's company never ventured beyond the production of condensed milk until the 20th century.
From the late nineteenth century on, manufacturers continued to search for a process to convert skim and whole milk into a form still more durable than canned milk, and cheaper to handle and package in large volumes (Mendelson 2008). The first large-scale U.S. manufacture of powdered milk was by Chester E. Gray, who invented a device to produce powdered milk by a vacum spray process still used today. With Aage Jensen, his partner, Gray began commercial production in 1904 at the Central Creamery in Ferndale, California (Ferndale Museum 2004). He received a U.S. patent on his invention in 1913 (Gray 1913).
References
Blyth, A. W. 1882. Foods: Their Composition and Analysis: A Manual for the Use of Analytical Chemists and Others. Charles Griffin & Co., London, UK. p 265.
Borden, G. 1865. Improvements in Condensing Milk, U.S. Patent RE2103 E (Reissued 14 Nov. 1865), Assigned to Gail Borden. U.S. Patent and Trademark Office, Washington, DC.
Ferndale Museum. 2004. Ferndale. Arcadia Publishing Co., San Francisco, CA. p. 36-40.
Frantz, J. B. 1951. Gail Borden: Dairyman To A Nation. University of Oklahoma Press, Norman, OK.
Gray, C. E. 1913. Apparatus for desiccating liquids, U.S. Patent 1,078,848, Assigned to Chester E. Gray (18 Nov. 1913). U.S. Patent and Trademark Office, Washington, DC.
Hunziker, O. F. 1920. Condensed Milk and Milk Powder, 3rd ed. Published by Author, La Grange, IL. p 277.
Mendelson, A. 2008. Milk: The Surprising Story of Milk Through the Ages. Alfred A. Knopf, New York, NY. p. 81-82.