How Food Banks Used Markets

By: Deanna Park

How Feeding America learned to feed more by embracing the free market.

Feeding America faces the same question every year: How to distribute the 300 million pounds of food donated to its 210 regional food banks. Until 2005, Feeding America distributed food and other goods on a first come first serve basis. Food banks that had been waiting for new supplies the longest received new donations, regardless of what those donations were. Although arguably a fair method of distributing supplies, food frequently ended up in the wrong places. Idaho has warehouses packed with potatoes, yet food banks located in the state continuously received potatoes. Before 2005, it would take days to work out which food banks received what, in which time fresh produce could spoil. The organization suffered gross problems of inefficiency in allocating already scarce resources.

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To correct the inefficiency, Feeding America adopted a free-market approach they called the Choice System. An internal virtual currency called “shares” was created and given to food banks on a need-by-need basis. Instead of trying to allocate donations, Feeding America holds an internal bid auction twice a day allowing food banks to bid on specific goods they are actually in need of. Food banks can borrow shares from other locations and can receive additional shares by selling extra local donations to the Choice System. The new system resulted in a big change, allowing everything to run more smoothly. Seven months after adopting the new system, food donations increased by 50 million pounds. Transportation costs have declined, as food banks began choosing donations they could realistically receive. The organization was able to track more popular goods by closely watching the prices goods traded at, then using the information to decide which donations the organization should aggressively advocate for. Most importantly, the system equipped food bank directors with better information about where food donations were available to better match the needs of local neighborhoods, resulting in a more efficient internal market.

Feeding America demonstrated the power of markets as a fair and equitable tool. It proved that efficiency and equity were not two separate concepts, but rather closely intertwined. Much of modern political discourse assumes that free market principles are associated with inequality, serving the richest and not the neediest. However, Feeding America found that unfair market outcomes could be avoided through eliminating wealth disparity by placing participating bidders on an equal footing. When two similarly equipped actors vie for one good, it is the actor that places greater value on the good that will outbid the other.

 

Works Cited

  1. Fisman, R., & Sullivan, T. (2016, June 07). How a Network of Food Banks Learned to Feed More People by Embracing the Free Market. Retrieved January 29, 2018, from http://www.slate.com/articles/business/the_dismal_science/2016/06/how_feeding_america_a_network_of_food_banks_learned_to_love_the_free_market.html
  2. Food Banks and Free Markets. (2016, October 15). Retrieved January 29, 2018, from https://www.nytimes.com/2016/10/16/business/food-banks-and-free-markets.html
  3. Mullainathan, S. (2016, October 07). Sending Potatoes to Idaho? How the Free Market Can Fight Poverty. Retrieved January 29, 2018, from https://www.nytimes.com/2016/10/09/upshot/sending-potatoes-to-idaho-how-the-free-market-helps-food-banks.html
  4. Prendergast, C. (2017). How Food Banks Use Markets to Feed the Poor. Journal of Economic Perspectives,31(4), 145-162. doi:10.1257/jep.31.4.145
  5. Teytelboym, A. (2015, October 06). What happens when America’s Soviet-style food banks embrace free-market economics? Retrieved January 29, 2018, from http://theweek.com/articles/580341/what-happens-when-americas-sovietstyle-food-banks-embrace-freemarket-economics