Canice Prendergast, W. Allen Wallis Professor of Economics, is a volunteer at a Chicago food pantry.
Feeding America collects truckloads of food from food manufacturers, big-box and grocery stores, and other sources all over the country, and distributes them to 210 regional food banks according to need. In the old system, food banks were ranked based on which needed the most food. One by one, they were told what food they were going to get and how many pounds of it they were going to receive. Even if they had yogurt, for example, they had to take more yogurt or run the risk of those donation sources no longer offering food.
That was inefficient and wasteful. Feeding America decided there had to be a better way. The organization came to us: Harry L. Davis [Roger L. and Rachel M. Goetz Distinguished Service Professor of Creative Management], Robert Hamada [Edward Eagle Brown Distinguished Service Professor of Finance Emeritus], Donald D. Eisenstein [professor of operations management], and me.
We proposed a market in which food banks would bid fake money in auctions of all the food that was available. So instead of being handed more potatoes, the Idaho food bank could bid on peanut butter, which is more nutritious and desirable.
At first the food bank directors were skeptical. One told us, “Look, I’m a socialist. That’s why I work at a food bank. I’m here to help people who are marginalized by markets. There’s no way I’m doing this.” We listened and made tweaks to our system before it launched. It has been a big success.
Unlike the old way, our system doesn’t treat a pound of potato chips like a pound of chicken. It also accounts for idiosyncratic demand—the Idaho food bank may have lower demand for potatoes because it already has access to a steady supply of them. We also allowed food banks to cooperate and place a joint bid. Maybe Idaho needs only one-third of a truckload of yogurt, so now it can bid for one-third of a truckload, Montana can bid for one-third, and North Dakota can bid for one-third. That way they all get what they need. This helps reduce waste. Now food banks have more choice.
“An extra 60,000 people have been fed a day because of this market.”
We also included negative pricing: a food bank can tell Feeding America, “I’ll take that hard-to-get-rid-of broccoli if you pay me 2,000 shares.” In this way, produce that would have spoiled in the old system now has value.
The system has worked for 10 years. The big food donors like Kraft and Walmart are happy because their gifts leave the warehouse in a timely manner, the small food banks have as much chance as the big food banks of acquiring the food their constituents want, and there’s less waste.
The process has increased supply by 100 million pounds of food a year. An extra 60,000 people have been fed a day because of this market.
It works because it’s an infinitely repeated game—there’s new supply every day. If a food bank doesn’t find something they want today, they know it won’t be long until something they prefer comes along, and so they are happy to wait and sit on their fake money. In general, this kind of market design works in situations where we don’t use real money to assign things. For example, there are good reasons you don’t want people to buy and sell human kidneys.
I have a greater ability to listen thanks to this project. It’s probably the most valuable thing I got out of the experience. We never would have been able to do this without listening to the food bank directors.
Madeline King, a Full-Time student who has volunteered in food kitchens since she was 10 years old, was a director of operations for a rapidly growing education nonprofit in Boston before she enrolled at Booth.
Madeline King learned about Feeding America’s allocation system through a talk Prendergast gave in early 2016. “I could not stop talking to all my friends about the talk, about how fascinating the topic was,” King said. “Going in, I thought I was going to learn more about supply-chain management or some new technology piece,” she said. “Afterward, my mind kept thinking, ‘Where else could we apply this?’ and I thought about school choice.”
“In a lottery system, parents rank the schools they want their child to attend. It might be interesting if you used the allocation model to give people a better system to express their preferences. Bid points would let them express how much more they want one school over another.”
“The school considers social impact an important area to apply findings.”
The food bank bidding system is similar to the iBid system that Booth students use to vie for the classes they want. “Like the food bank directors Professor Prendegast worked with, I had to get over my initial reaction,” King said. “This isn’t how I signed up for classes in undergrad. Why do I have to learn a new system?”
“After getting used to it, I see how useful it is. I spend my points to create a schedule that’s condensed into back-to-back days. That allows me to intern off campus one day a week at New Schools for Chicago (a charter school–supporting nonprofit whose CEO is Daniel Anello, ’07).”
King is impressed by how Booth professors worked with the food bank directors to create, test, and implement a market that has boosted food donations while satisfying directors’ needs. “It just shows how outward facing Booth is,” she said. “The school considers social impact an important area to apply findings.”
William A. Rudnick, ’97, is a Chicago-based partner at law firm DLA Piper, cofounder of the Global FoodBanking Network, and a former chairman of the board of Feeding America (then called America’s Second Harvest) and the Greater Chicago Food Depository.
Food banking is the collection of surplus and otherwise unmarketable food, and the organization of and redistribution of that food. It is a great example of leverage, the ability to use infrastructure and process to create exponentially larger value than you started with. We take food that would otherwise go to a landfill and get it to people who don’t have enough to eat. The delta in that process is enormous.
The popular conception of food banks is that they distribute food to hungry people. They don’t. Food banks are the wholesalers in the distribution. Food banking involves pallets, inventory management, delivery optimization—it’s a logistics problem. And that’s where business schools can help.
The externalities of this work are interesting. There are a lot of programs that feed the hungry, but that’s not their primary service. For example, domestic-violence shelters, drug counseling centers, senior centers, child-care centers—each has a primary mission separate from feeding people, but they do because it’s one way to get people through the front door. If you’re running a domestic-violence shelter and you don’t have to pay wholesale prices for food, that’s a huge savings in your operation budget, and you can serve so many more people because you’re getting your food from a food bank at a fraction of the cost.
“Food banking doesn’t just help feed the hungry. It solves an array of operational challenges.”
I started out in food banking in the late 1980s with the Greater Chicago Food Depository. After working with them for more than 10 years, serving on and chairing the board, I moved to the Feeding America board, where I worked on food banking locally and nationally with my colleague Bob Forney. As my time was coming to an end, Bob and I had a hunch food banking could work outside the United States. That seemed like the logical step. So we cofounded the Global FoodBanking Network.
We have done food banking around the world, and the challenges and opportunities vary greatly. In the United Kingdom, for example, landfill space is expensive. Anything to reduce waste out the back door is valuable to them. Food banking doesn’t just help feed the hungry. It solves an array of operational challenges.
Once a food bank is up and running, they are hard to stop because everyone involved is active, from the government to the food donors, the food banks and the food pantries, to other social organizations. Their interests are all aligned, and that’s really powerful.
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