Ripples From Peanut Scandal Affect Companies Big and Small
Sunday, March 1, 2009
Candymaker Tom Hurst didn't even recognize the name Peanut Corporation of America when he first read about the company at the heart of the salmonella outbreak.
But within days, the president of Heavenly Candy was calling Whole Foods stores across the country, telling them to pull his Peanut Bliss bars off the shelves, filling out unending paperwork for the Food and Drug Administration, and staring at a loss of a month's worth of products with a value of about $6,000.
"Peanut Bliss had been selling really well, and then this happened," said Hurst, who runs the company out of his Oregon home and has one employee -- his wife, Susan. "This was half my sales."
Hurst's supplier, which had purchased roasted salted jumbo Virginia peanuts from Peanut Corporation, is reimbursing Hurst for the cost of his recalled candy but not the lost profits. That makes Hurst luckier than some.
After government officials closed two of Peanut Corporation's three peanut plants, few were surprised when the company filed for bankruptcy protection on Feb. 13. But hundreds of companies that unknowingly bought its tainted products now face serious financial troubles of their own, and the fallout is affecting businesses as tiny as Heavenly Candy and as large as Kellogg.
Federal officials say 666 illnesses and nine deaths in 45 states and Canada have been linked to the contaminated peanut products, and the outbreak is ongoing, although the pace has slowed. Investigators say the company's president, Stewart Parnell, knowingly distributed tainted peanut products. The company is the target of a federal criminal investigation as well as a growing number of civil claims from victims of salmonella illness.
Forward Foods of Minden, Nev., which makes Detour protein bars, popular among bodybuilders, filed for bankruptcy protection Feb. 17. In court filings, the company explained that it had to recall 75 percent of its product line because it was made from spiced roasted peanuts from Peanut Corporation.
"A significant value of inventory must be condemned," Forward Foods chief executive J. Patrick Muldoon wrote in an affidavit filed in U.S. Bankruptcy Court in Nevada. "And to the extent customers are appropriately destroying or returning unsold recalled product, the ability to collect outstanding receivables is very much at risk."
The company, which has about 50 permanent employees and 25 temporary workers, is seeking court approval of a $4 million line of credit to enable it to keep producing the protein bars and regain its footing.
"One of the tragedies is that it hits other small companies that were users of this product but didn't have a lot of other products to carry them," said Jean Kinsey, an economics professor at the University of Minnesota and co-director of its Food Industry Center.
Large national firms are taking a hit as well.
Scotts, the lawn fertilizer giant, sold wild bird seed that contained peanut meal from Peanut Corporation. Bird seed contaminated with salmonella is not considered a significant threat to animals, but it does endanger humans who handle it.