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Feeding America

Feeding America is  a United States–based nonprofit organization that is a nationwide network of more than 200 food banks that feed more than 46 million people through food pantries, soup kitchens, shelters, and other community-based agencies.

A discussion on the introduction of market forces for allocating food to food banks.

In the USA there’s an amazing organisation called Feeding America that receives donations of 50 truckloads of food, each containing 13,000kg of provisions, every day. Its job is to distribute the food to the 215 food banks who are affiliated with it.

This used to be done via a queuing system:

  • Every day the 50 food banks at the front of the queue would be given a truckload of food each – these food banks then went to the back of the queue
  • The following day the next 50 in line would get food – and so on
  • To avoid charges of favouritism, food banks were not given any choice to which foodstuffs they received.

The problem

Often, food banks were allocated either foodstuffs they didn’t want or a particular type of food they had a lot of. And they often accepted food they couldn’t get rid of or couldn’t store, which meant that the food was wasted. In one example a food bank accepted a consignment of yoghurt but had no space in its refrigeration unit, so thousands of kilograms of yoghurt spoiled and became inedible.  The allocated food might also come from a location on the other side of the USA. Food banks were responsible for paying for the transportation of the consignment, so this often led to extremely high transportation costs for the charity – maybe even for a truckload they did not really need. Food banks could refuse to accept a certain truckload, but this would mean they would go to the back of the queue without having received anything.

The solution

Economists from the University of Chicago were asked to devise a more efficient system – and the solution they came up with used market forces and prices. Initially it was quite a hard sell to the charities – many of whom blamed similar market forces for the predicament of the users of their food banks.  The solution that was eventually agreed centred upon a type of constructed currency that was called “Shares”. Food banks used their shares to place bids for food consignments in auctions, which happened twice a day. (The auctions were sealed bids, so food banks could not see what others were bidding.)

The result

As an economist, it gives me great pleasure to write this sentence: it seems like this solution was not just a success, but led to unintended consequences which made it even more so. Food banks are allowed to put in zero bids, meaning they might get the consignment for free, and can even make “negative bids” where they ask to be paid to accept a truckload of food nobody else wants.  Smaller food banks can make joint bids where they agree to share a truckload of food if they win the auction.  This has meant that every truckload of food put up for auction since the system began in 2005 has found a “buyer”.  Since shares are not a real currency, and are reallocated at regular intervals, no real financial loss was incurred by any food bank – but it served as an extremely effective rationing mechanism.  Some feared that larger food banks would dominate the market, but this was avoided in 2 ways.

  1. Shares were allocated, not just according the size of the area which a food bank covered, but also due to the proportion of people in that catchment area who need the support of that bank
  2. It turned out that larger charities bid for different foodstuffs to the smaller ones. The larger food banks tended to have ample supplies of staple foods, so bid for expensive consignments like chicken breasts or peanut butter. Smaller food banks lacked staples, and because there was only limited demand for them, were able to get them at low prices or often for free

Charities have also begun to source food independently from local businesses and put it into the market. This meant that food banks earn more shares to bid with in other auctions, and it has also increased the total amount of food available – it’s estimated this has added 25% more food compared to the old system. So food banks can get food that they need and want, waste has been eradicated, excessive transportation costs have been avoided and extra food has been made available. And, perhaps most tellingly, a complaints line set-up in case any food bank thought the new system was unfair has not been contacted a single time in the ten years that the scheme has been running. Maybe we need to say it quietly and perhaps with fingers crossed, but this appears to be an example where Economics has really helped to make the world a bit of a better place.

(Source: Feeding America’: A Brilliant Example of Economics Being Successful – Adrian Spottiswoode – 15th March 2016)