Food Bank Donations and Retail Pricing

Abstract

Food banks are an important part of the food-retailing setting. In 2018, food banks delivered a total of 1.4 billion pounds of donated food to 51.4 million clients. Perhaps more importantly, food banks serve as an important outlet for food that would otherwise be discarded in land-fills, or composted. Despite the economic and social importance of food banks, we know very little of their economic role in food distribution. In this article, we explain the existence of food banks as an essential mechanism to the food-retailing function, permitting food retailers to price-discriminate between high-valuation consumers who visit their stores, and low-valuation consumers who do not. Donating to food banks allows retailers to avoid destructive promotions for fresh products, provide an outlet for over-ordering to prevent stock-outs, and generates valuable tax write-offs. We show how secondary markets for perishable food products improve profitability, and we test the implications of our model using a unique data set of perishable food sales. We find that retailers that take advantage of secondary markets are more profitable than those that do not. Our findings explain the co-existence of traditional food retailers, and food banks.