By Lyndsey Layton
Washington Post Staff Writer
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.
At the outset of the salmonella illness, Scotts executives said they contacted their supplier, which reassured them that the bird seed did not contain products from Peanut Corporation. Now Scotts is suing the supplier, claiming it lied about the origins of the peanut meal.
Scotts executives say they learned that their wild bird seed included possibly contaminated peanut meal only after it had been shipped to distributors and retailers.
In filings in U.S. District Court in Ohio, Scotts wrote that its recall of five varieties of bird seed has caused the company "substantial damages," although it did not specify the amount, and resulted in "significant" injury to its brand name. A spokeswoman for the company declined to discuss the matter.
Kellogg, which recalled products from its Austin, Keebler, Famous Amos and Special K lines, spent $34 million on the recall last year, and executives have said they expect the total to reach $70 million.
The widespread reverberations from the peanut scandal are a result of the way the U.S. food industry is organized, Kinsey said.
Peanut Corporation made just 1 percent of the country's peanut butter supply, for institutions and private labels. But it also produced various peanut products, including meal and granules, that were purchased by hundreds of manufacturers to make items including cookies, crackers and ice cream. More than 2,200 products have been recalled, many carrying well-known labels such as Martha Stewart, Famous Amos and Little Debbie. An updated list is available at http://www.fda.gov.
"We've got concentrated manufacturing that then sells to a large number of other people," Kinsey said. "Everyone trusts it to be safe. And, by and large, it is and has been and probably will be in the future. But you get a couple of errant operators in the supply chain, and because that product is used by so many different people and places, it has multiple tentacles and it becomes very difficult to trace it. It's so insidious."
Although major brands of peanut butter were not part of the salmonella scandal, the entire $800 million industry has suffered as worried consumers shied away from peanut products. Sales of peanut butter were down 24 percent in the four weeks that ended Jan. 25 compared with to the same period last year, according to Information Resources, a Chicago market research firm. February data, which might show whether consumers are returning to peanut butter, are not yet available.
J.M. Smucker, maker of Jif, and ConAgra Foods, which makes Peter Pan, have run newspaper ads pointing out that their peanut butter was not made with Peanut Corporation products. The ads included coupons to bring customers back.
"That type of advertising is mightily resisted by the food industry," Kinsey said. "They don't ever want to imply that there are food safety problems at all. But they got pushed to the wall on this."
Meanwhile, Peanut Corporation of America is being sued by its insurer, Hartford Casualty Insurance, which is challenging the amount it must pay out to those with legal claims against the company. In court filings, the insurer said it and Peanut Corporation are in a dispute about whether the circumstances of the salmonella contamination voids the liability coverage.
Staff researcher Julie Tate contributed to this report.
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