Doom du Jour No. 3

From the Wall Street Journal:

A Different Banking Crisis in Need of Fresh Capital

By ROBERT A. GUTH and ROGER THUROW

As the nation's financial crisis spread earlier this fall, several thousand people pressed forward in a line to make a withdrawal from a bank in suburban San Diego.

The line stretched out the building, up the street and past the fire station. They walked away with boxes filled not with money but vegetables, fruit, pasta and juice.

It was a run on a food bank.

As the economy sours, the nation's food banks are struggling to feed a surge of Americans worried about finding their next meal. The challenge remains great even in the face of significant infusions of assistance from corporate America. On Wednesday, Wal-Mart Stores Inc. began offering food banks food from its stores nationwide and also boosted its cash contributions, while Wells Fargo & Co. is expected to announce Thursday an increase of its donations to food programs. The two companies expand a list of recent high-profile cash donors to food programs, including Kraft Foods Inc., Ford Motor Co., Newman's Own Inc. and billionaire Kirk Kerkorian's philanthropic foundation.

The long lines and the rush to cope with them expose America's persistent hunger problem and the challenges facing the institutions fighting it. Over the past decade, changes in what Americans eat and how food makers feed that appetite has cut food donations to food banks while boosting food banks' costs. Food banks were already grappling with these changes when the economic downturn hit. The rush of recent donations could help alleviate some of their problems. But the lengthening food lines threaten to outpace the assistance.

In the past two decades, a vast system of food banks has evolved to support the millions of people in the U.S. -- one in nine households last year -- that have difficulty affording enough food for all their family members at some time during the year. The food banks are basically depots that collect bulk food and repackage it for food pantries and soup kitchens to distribute to the needy. The largest of those food-bank organizations, Feeding America, coordinates a network of about 200 food banks serving more than 63,000 pantries and soup kitchens nationwide.

The food banks historically depended on food donations from food manufacturers and large supermarket chains. But in recent years, production of canned food, long a main staple of the food-bank business, has steadily fallen as American preferences shifted toward fresh food. Food from U.S. government programs in recent years has also dropped.

That change is compounded by higher efficiencies in food production and distribution. Manufacturers and retailers can better predict demand for products now, and produce fewer damaged cans and broken boxes -- items that would have traditionally gone to food banks. The rise of dollar stores and other low-priced retailers gives food makers a new outlet for excess food and a chance to recoup some of their costs, a benefit not offered by many food banks.

All this means less food for food banks. So they're buying more of their own food and moving to fresh foods, which are more nutritious than packaged food but are also more expensive to handle. Others are setting up kitchens to mix fresh ingredients into prepared meals that can be frozen. All are trying to boost cash donations to cover the growing cost of food and the infrastructure -- like freezers and refrigerated trucks -- for storing and transporting fresh food.

The economic shock didn't help. Food and gas prices soared early this year. And even as those prices have abated, recent economic woes -- layoffs and house foreclosures -- have lengthened lines for food across the country.

"We expect it will get worse before it gets better," said Vicki Escarra, Feeding America chief executive.

The San Francisco Food Bank reflects the challenge. A drop in donations of packaged foods in recent years forced it to build tighter connections to the state's farmers. Though difficult, that's proving more viable than relying on the food industry.

"Mother Nature is pretty solid -- there's always going to be more oranges next year," said Paul Ash, executive director of the San Francisco Food Bank. "That's not true with the manufacturing industry."

On a recent morning, Mr. Ash, stood in his 60,000 square-foot depot pointing to cardboard crates of oranges, acorn squash, carrots, cabbages and watermelons. Fresh fruits and vegetables now account for over half of the food the food bank distributes. Collecting produce and distributing it to pantries means the food bank has to maintain a fleet of seven refrigerated trucks and more volunteers to sort through the fresh food.

This requires more cash. In recent years, the San Francisco Food Bank has successfully coaxed more cash donations, which, thanks to a big one-time gift, reached $10.2 million in the year ended June 30, 2008, from $6.4 million in 2007. It has budgeted for a further increase over the next year, but "even if our plan is successful, we're going to come up short," Mr. Ash said. Demand at the 380 food agencies his organization services keeps rising. Donations of food from retailers to the San Francisco Food Bank have already dropped 20% in the past year.

Several corporations are injecting more cash, if not food. Wal-Mart is doing both. On Wednesday, it announced a new program that will push more food into the food-bank network by increasing the donations of meat and dairy products that are approaching their "sell by" dates. The food will be available through more than 2,700 Wal-Mart Supercenters and nearly 600 Sam's Clubs, and distributed by Feeding America banks. The Wal-Mart Foundation also donated $2.5 million in cash to help food banks improve warehouse capacity and purchase refrigerated trucks to transport the food.

The philanthropic arm of Wells Fargo is expected to announce that it will double its donations, to $100,000, to 16 food banks in the San Francisco area, say officials at the Wells Fargo Foundation. Nationally, the bank has donated $1.2 million to food programs this year, up from $1 million last year, they said. The money will largely go towards buying food.

The Ford Motor Company Fund and Community Services is shifting its donations to meet basic needs like food. Its giving to hunger projects is up 40% from a year ago, particularly to food-distribution agencies in southern Michigan serving a population hit hard by the auto industry's woes.

Ford, Newman's Own and Kraft all recently donated funds for trucks, including 25 refrigerated "mobile food pantries" that Kraft will provide over the next three years to Feeding America. "Seeing the larger numbers of people dependent on the food-banking system, we felt this would be one of the toughest years ever for feeding the hungry," says Amina Dickerson, Kraft's senior director for corporate community involvement.

The flow of new money is a welcome relief for some organizations such as the Open Heart Kitchen, a soup kitchen in Livermore, Calif., which nearly closed in October when its usual donations, including cash and food from individuals, businesses and civic organizations, "completely dried up," said Nancy Richardson, president of the nonprofit's board. The soup kitchen ran down its cash reserves until it was able to scrape up funding through public appeals in the local media.

But that money and much of the recent largesse could prove to be little more than a stopgap measure for other food organizations. In recent months, rising costs and an array of economic blows forced food banks and pantries to shut down, some for days, others permanently, in Seattle, Alabama, Missouri and other states.

This comes as Feeding America says demand at food banks is up about 25% across the country over a year ago, including a surge in first-time clients. More than one-third of those Feeding America serves live in a household where at least one person is employed; about a third of its clients are children, 10% elderly and only about 12% are homeless.

In San Diego in September, more than 4,000 people -- double the expectations -- flocked to the Word of Life Worship Center for food from the Feeding America-San Diego Food Bank, forming a line that snaked through the neighborhood.

"The best-case scenario is we don't miss a beat," says Vince Matulionis, a director at the United Way of King County, which recently set up a $200,000 emergency fund for food banks in the Seattle area. "The worst case is that you'll have strong agencies that have been in the community for a long time that are not able to continue doing business."

Write to Robert A. Guth at rob.guth@wsj.com and Roger Thurow atroger.thurow@wsj.com