Episode 665: The Free Food Market
Note: This episode originally ran in 2015.
#665: The Free Food Market
The Free Food Market
When Susannah Morgan was running a food bank in Alaska, she always needed produce. Items like fresh oranges or potatoes. But her food bank didn't get much. Feeding America, a major supplier for food banks, assumed transporting fresh produce would be too expensive. Instead, among other things, Susannah's food bank got pickles. A lot of them. At the same time, Feeding America was flooding Idaho with potatoes.
A new CEO at Feeding America thought there had to be another way, and started holding focus groups with local food banks and economists. It was at one of those meetings that University of Chicago economist Canice Prendergast had an idea: Create a free market for food banks. A little economy built just for them. With its own money and everything.
On today's show: The bold experiment in capitalism that brought together an economist, hundreds of food bank directors from around the country, and, just to spice things up, a socialist.
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STACEY VANEK SMITH (HOST): About 10 years ago, Susannah Morgan was running a food bank in Alaska. And she really needed fresh produce. She always did. One day, the phone rang. It was this big, national charity called Feeding America.
JACOB GOLDSTEIN (HOST): Feeding America is this network of food banks all around the country, including Susannah's. And what they do is they get these big donations of food, and they figure out where they should go. On this call, they said they had a big donation for her. It was not fresh produce; it was a truckload of 5-gallon buckets of pickles.
SUSANNAH MORGAN (FOOD BANK OF ALASKA): You're kidding me. You're offering me pickles (laughter)? And the Feeding America person said, yeah, I know. I know. I know. But you guys have been hanging out there at the top of the list for quite awhile, and this is the first thing we've had that we think will really make it all the way to Alaska.
GOLDSTEIN: And what did you do with them?
MORGAN: We strong-armed every soup kitchen we could find into taking pickles (laughter).
GOLDSTEIN: Susannah would ask the people from Feeding America, why aren't we getting more fresh produce?
MORGAN: And so Feeding America would say, well, we didn't offer you that truckload of oranges out of California because we thought the transportation would be too expensive. And I would say, ahh.
GOLDSTEIN: That scream there, that's because Susannah had set up her own transportation system so that if Feeding America had offered her fresh fruits or vegetables, she could get them trucked to Alaska really cheaply. But the people at the Feeding America home office didn't know that.
SMITH: And a lot of food banks had this problem. One food bank director in Idaho, my home state, complained that he got a truckload of potatoes. I mean, come on; it's Idaho. Of course he already had a warehouse full of potatoes that had been donated by local farmers.
GOLDSTEIN: This system had real consequences for hungry people all over the country. It meant that people in Alaska were not getting fresh produce, were not getting, say, potatoes. And at the same time, the food bank in Idaho had too many potatoes and not enough other stuff.
SMITH: Everybody knew this was a problem. But for a long time, they just lived with it. And then, Susannah says...
MORGAN: A new CEO came into Feeding America. And as usual, what happens when you bring in a pair of fresh eyes, they look at something and say, I can't imagine why you guys were living with that system that sucks. (Laughter).
GOLDSTEIN: Hello, and welcome to PLANET MONEY. I'm Jacob Goldstein.
SMITH: And I'm Stacey Vanek Smith. Today on the show, how a bunch of food bank directors, including at least one socialist, tried to figure out a better way to get food to hungry people - their bold experiment, the free market.
GOLDSTEIN: Sort of free, anyway - definitely a market.
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GOLDSTEIN: That bold experiment happened about 10 years ago. The new CEO started gathering together a group of people, some from headquarters, food bank directors from around the country, including Susannah Morgan from Alaska - also a few economists from the University of Chicago.
SMITH: Susannah and the other food bank directors start flying to Chicago every few months, sitting down in a room and talking about their own version of the pickle problem. And pretty soon, Susannah says, they get to the heart of it.
MORGAN: It is a problem for someone else to make decisions for you, right? It is a problem if somebody else is trying to decide whether this is something you need or not when they don't know what's in your inventory at the moment. They don't know what your local donation supply is. They don't know what donated transportation you've arranged for or what your fundraising is at the moment. So to have a central office trying to make those decisions far away from those sources of knowledge led to all sorts of mismatches.
GOLDSTEIN: When the economists in the room heard Susannah and her colleagues lay out the problem this way, they got very excited. Susannah remembers one economist in particular named Canice Prendergast.
MORGAN: Once we were able to lay it out in those clear terms, then Canice, from the University of Chicago, was able to say, well, sounds like an economic problem to me.
MORGAN: Sounds like economics 101. (Laughter).
SMITH: There is this phrase in economics, the local knowledge problem. And it's why, essentially, planned economies don't work very well.
GOLDSTEIN: No matter how smart the people in control are, whether they're in headquarters or the capital or the castle or whatever, they just don't have the knowledge to decide whether the people, you know, out in Alaska should get pickles or oranges. And when I talked to Canice, the economist who was in the room with Susannah and the other, he told me the clear answer to the local knowledge problem is a market, a place where buyers and sellers come together, because the beauty of a market - and in particular, the beauty of prices - is they show you how much different people, or in this case different food banks, value different things.
SMITH: But Canice says that room full of food bankers was not very excited to hear his pitch for the virtues of the free market.
CANICE PRENDERGAST (UNIVERSITY OF CHICAGO): One of the food bankers, a wonderful guy called John Arnold, came up to me and said, look, I'm a socialist. I have no interest in this. I'll listen to you, but I don't have any interest in this.
GOLDSTEIN: I should mention that John Arnold passed away a couple years ago. But when I ran this quote by Susannah, she said, yeah, I could totally imagine John saying that. And anyway, John was not the only food banker who was wary of the market.
PRENDERGAST: I think many of them have the following sense. Markets are sometimes unfair. It benefits the powerful. It benefits the wealthy. It benefits the strong. Their focus is so much on the others, the ones who've been left behind.
GOLDSTEIN: Left behind by markets.
PRENDERGAST: By markets - by markets. And their great fear is that whatever we came up with would do the same. And if it did, they would prefer the old system.
GOLDSTEIN: The idea of a market just seems fundamentally contrary to the spirit of food banks. I mean, these are places that give away food for free to hungry people. And in any case, it wasn't like Feeding America could just sell food to the local food banks. One problem with that is the food banks in poor areas often have the hardest time raising money from local donors. They're in poor areas, so they wouldn't have enough money to buy the food.
SMITH: So Canice and the other economists asked the food bankers, what about fake money? What if Feeding America created its own little economy and gave out fake money to all the food banks, which they could use to buy the food.
PRENDERGAST: The next question they said, was, but how do we - how do we make sure the neediest get the most food, to which we said, we give them the most fake money. And in some sense, maybe that was one of the early breakthrough moments, which was the idea that the poor can actually be wealthier than the rich.
GOLDSTEIN: In fake money.
PRENDERGAST: In fake money, exactly.
GOLDSTEIN: You could imagine distributing this fake money to the neediest places and then letting them buy, you know, whatever they want out of this national Feeding America system. But you still have to solve all these other problems. You know, what should prices be in this new fake money? How do you let everybody shop in a way that's fair? So more flights to Chicago, more meetings with the economists, and finally Canice and his colleagues came up with a big idea. Susannah Morgan remembers when it happened.
MORGAN: Canice said, well, how about eBay? How would it work if we set up a system in which all of the food in truckloads that's donated goes on to a technology platform, and the decision as to whether you want it for your food bank is made at the food bank and how much you want it is made by how much you bid on it?
GOLDSTEIN: And how did that play in the room?
MORGAN: The clouds opened, and the angels sang.
GOLDSTEIN: (Laughter) No, that never happens.
MORGAN: (Laughter). I know - OK, maybe it wasn't quite that biblical. But there was literally this moment in which we just went, we've had a breakthrough. And then we had to spend a year or 18 months after that working out the details. But it was details from that.
SMITH: It was like setting up a whole economy. Fake money, prices set by auctions, and with that key twist; the food banks that fed the most hungry people would get the most fake money.
GOLDSTEIN: To see how the system works in real life, I went out to the Community FoodBank of New Jersey last week. They have this huge warehouse out by the Newark Airport. Tristan Wallack gave me a tour.
TRISTAN WALLACK (COMMUNITY FOODBANK OF NEW JERSEY): I can see some raisins up here, canned salmon. You got some grapefruit juice. What else do we have here? We have some tomato sauce.
GOLDSTEIN: Tristan says the most recent thing he bought at auction with that fake money, some syrup.
WALLACK: The pancake syrup interested me in particular 'cause I know we just bought some pancake mix.
GOLDSTEIN: So there's a moment when syrup was particularly valuable to you 'cause you were a guy with pancake batter but no syrup.
GOLDSTEIN: So at least for now, that means a lot of people in New Jersey can now have syrup with their pancakes.
WALLACK: We cut up here. We can head back to the office.
GOLDSTEIN: The office is a smallish room attached to the warehouse. And it's where Tristan bids in these auctions. We get in there, and he opens a browser on his computer, logs into the Feeding America system and shows me this morning's auction. Down at the bottom of the page, there's a number in red. This is like Tristan's bank account of fake money. The money, by the way, has this warm, fuzzy-sounding name - shares.
What does this say right here?
WALLACK: Yeah, it says available shares. At the moment, I have 5,439 shares. You can kind of view shares - I view it as, like, Monopoly money.
SMITH: Except that it has real consequences. Every day, Feeding America gives Tristan some fake money in his bank account. And there's a formula so that the food banks that feed the most people will get the most fake money.
GOLDSTEIN: Yeah, on a typical day, Tristan's food bank gets a few thousand shares. You can think of it like an allowance.
SMITH: And he can treat it like an allowance. If he wants to spend it every day on something little, he can do that. If he wants to hoard it and splurge on something big, he can do that too.
GOLDSTEIN: Today, he pulls up the auction on his computer, looks through the stuff. There's some Fanta Grape Soda, some Polly-O Cheese. And then something catches his eye. It's a truckload of cereal.
WALLACK: Clicking on here, I can see that there's a lot of Corn Flakes. There's a little bit of Frosted Flakes on here. There's some Kashi cereal.
GOLDSTEIN: So about a hundred-thousand boxes in all. And he says cereal is something people always want and that he doesn't get enough of from his local donors.
SMITH: He can't actually see how much the other food banks are bidding. And Canice and Susannah and the others, they designed the system this way so that people couldn't just wait until the last second and bid one more fake dollar to get what they wanted. So it's a sealed bid auction. You put a number in and wait. And when the auction's done, you see if you won.
GOLDSTEIN: The system does tell Tristan that on average, truckloads of cereal like this one have sold for 4,400 shares.
WALLACK: I currently have about 5,400 shares, so I'm going to bid all of my shares.
GOLDSTEIN: You're going all in for the cereal.
WALLACK: Yeah, I'm going to go all in. And even going all in, this is no guarantee that I'll get it.
GOLDSTEIN: Tristan types in his bid, clicks submit...
WALLACK: Now it's a waiting game, crossing fingers and hoping for the best.
GOLDSTEIN: I asked Tristan to show me some of the other stuff that's sold at auction lately. And he pulled up a bunch of results on his screen.
And what's this one?
GOLDSTEIN: What was the price?
WALLACK: They put in a bit of minus 2,000.
SMITH: Minus 2,000. For stuff that's really unpopular, food banks don't want to pay to truck it in. And they don't want to find a place to store it. So they can bid negative shares. In other words, they can say, sure, I will take the pickles if you will give me extra fake money. That's what happened with the pickles.
GOLDSTEIN: So they won it by saying, yeah, we'll take it off your hands if you pay us.
GOLDSTEIN: A few minutes after Tristan bid on that cereal, this morning's auction is over.
WALLACK: I think the results should be in, if we...
GOLDSTEIN: I'm nervous. Are you nervous?
WALLACK: I'm a little nervous.
GOLDSTEIN: Tristan hits refresh.
WALLACK: So we lost it.
GOLDSTEIN: Oh, you didn't get it.
WALLACK: No, someone else won this load with 11,564 shares.
GOLDSTEIN: The winner bid twice as much as Tristan. Someone in Evansville, Ind.
(SOUNDBITE OF PHONE RINGING)
JOHN STRAIN (TRI-STATE FOOD BANK): Tri-State Food Bank.
GOLDSTEIN: Yes, hi. I'm trying to reach John, please.
STRAIN: This is him.
SMITH: This is John Strain of the Tri-State Food Bank, proud new owner of a hundred-thousand boxes of cereal.
GOLDSTEIN: Was there a particular reason right now that you especially wanted cereal?
STRAIN: I just knew that we were down to basically about half a trailer full of cereal. And it goes - it probably will be gone in the next two weeks.
GOLDSTEIN: John actually gets less fake money allowance every day than Tristan. But he'd been saving up for weeks, and he was about to run out of cereal, this food that everybody really wants.
STRAIN: It's a breakfast, a supper, a midnight. It doesn't matter when you eat cereal, you know? You eat it dry. You eat it with milk, you know, whatever - whatever makes you happy.
GOLDSTEIN: He figured it was worth it to go big, spend more than twice the average and get that cereal.
SMITH: If Tristan in New Jersey decides that he really needs cereal, he can save up too, put his own monster bid up the next time more Corn Flakes come up for auction.
GOLDSTEIN: John and Tristan are too new to remember much about that old system back when Feeding America just sent people stuff. But it seems like the new system is definitely an improvement. Susannah Morgan said the auction system meant they could finally get produce at the food bank in Alaska. And Canice, the economist, told me even John Arnold, the socialist from Michigan - even he came around in the end.
PRENDERGAST: He went from being the most skeptical to being somebody who actually thought it was worth doing.
GOLDSTEIN: What happened?
PRENDERGAST: I think what he realized was the use of this market would give him access to a lot of really cheap food.
SMITH: So while other food banks were in bidding wars over cereal, John Arnold could swoop in and pick up the stuff that everybody else was ignoring.
PRENDERGAST: And he became what we call the bottom feeders. He was one of these guys who'd log in every morning, see what was cheap, get loads of it. And his solution was essentially, the market allows me to get a lot of pounds of food in a way that I did not get before.
GOLDSTEIN: And when Canice says John would log in and see what was cheap, he of course means what was cheap in fake money. And one of the really interesting things that has emerged from this system is just how different prices are in this fake-money food bank economy compared to the, you know, real-money economy we see at the grocery store.
SMITH: Like peanut butter is incredibly valuable in the food bank economy. It lasts forever. It doesn't have to be refrigerated. And it is a great source of protein. Also, kids love it. A truckload of peanut butter can cost tens of thousands of shares.
GOLDSTEIN: Dairy, on the other hand, really cheap in the food bank economy. Lots of food banks get local donations of dairy. They often have to move it pretty quickly 'cause it has, you know, short expiration dates. It's harder to store 'cause you have to keep it refrigerated. So up in Michigan, Canice says, John Arnold could buy a lot of dairy. And in the end, John Arnold really helped the system take off all around the country.
PRENDERGAST: He was a very persuasive figure because I think a lot of other the other food bank directors said, if he's in, I'm in - 'cause they thought he was unlikely to be a candidate to go along with this.
GOLDSTEIN: If the socialist is in on the market system, how bad could it be?
SMITH: There was one part of the new system that did not work out.
GOLDSTEIN: Yeah, when Canice and Susannah and the others were in that room creating this new system, they figured food banks should be able to sell food to each other for fake money. So that Idaho food bank with all the potatoes could sell them to Susannah in Alaska and get fake money to buy whatever they needed in Idaho. But even though the food bankers are OK with buying stuff for fake money, they don't really want to sell stuff to other food banks. Here's John Strain, who bought the cereal for that food bank in Indiana.
STRAIN: If I'm a food bank and I have extra product, I'm going to share it with another food bank. I don't want no extra money or nothing out of it. I've shared with five different food banks in the last 60 days. I just think you should share what you've got if you've got plenty.
GOLDSTEIN: So, OK, food bank directors are fundamentally generous people. It's why they're running food banks, right? And that is part of the reason this corner of the market never took off. But Susannah Morgan says there is something else at work. There's something subtler - really another kind of economy.
MORGAN: This is a network built on relationships.
SMITH: If you work at a food bank, she says, you need to have friends at other food banks.
MORGAN: You're going to rely on those people for more than just food. You're going to rely on those people for stealing their good fund-raising practices. You're going to rely on those people for advertising the positions that you have open. So those people are your best source of - of learning and contacts. And you can use food as one of the ways you nurture those relationships.
GOLDSTEIN: Susannah's now running the Oregon Food Bank. And she says she does occasionally use the system to sell food to other food banks but not often. She says she would much rather just give it away to another food bank.
Thanks to City Harvest. They're part of Feeding America here in New York City. They let me come out and watch as they bid on and won a truckload of frozen pizza. Email us at firstname.lastname@example.org, or tweet at us - @planetmoney, @jacobgoldstein, @svaneksmith. Today's show was originally produced by Jess Jiang. The rerun was produced by Kasha Mihailovich (ph) and Alice Wilder.
If you're looking for something else to listen to, try the NPR Politics Podcast. It airs at least twice a week, sometimes more, and helps you stay up to date on all the latest political news. You can find the NPR Politics Podcast on NPR One or wherever you listen to podcasts. I'm Jacob Goldstein.
SMITH: And I'm Stacey Vanek Smith. Thanks for listening.
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