Salmonella Recall Could Cost Peanut Producers $1 Billion

The effects of the widespread peanut butter recall could cost rural America’s peanut producers $1 billion in lost production and sales, according to testimony at a House subcommittee hearing.

That could be just the beginning, the head of the Georgia Peanut Commission told a subcommittee of the U.S. House Committee on Small Business, according to prepared testimony obtained by The Associated Press.

In his testimony, Don Koehler said that the recalls, prompted by a salmonella outbreak tied to peanut butter, have severely hurt the nation’s peanut producers, weakening pricing and limiting their ability to sell their products.

Koehler said the recall goes far beyond the source of the outbreak, Lynchburg, Va.-based Peanut Corp. of America, and that the companies that used its peanut butter and peanut paste in their products have had to remove their products from the marketplace. The true cost won’t be known until the outbreak is over and the recall complete, he said.

“Farmers, as small businesses, have felt the real economic impact of this recall,” he was set to tell the Small Business Committee’s Regulations and Health Care Subcommittee. “Because farmers do business with other small businesses who supply them their inputs, the ripple will not likely stop at the farmer.”

Many businesses big and small have been hurt by the recall, which started in January when the salmonella outbreak was linked to products from Peanut Corp., which filed for Chapter 7 bankruptcy last month. The company supplied peanut butter for industrial use in products like cakes, ice creams and even dog food. Companies have recalled more than 2,100 products containing Peanut Corp.’s peanut paste, marking one of the largest recalls in U.S. history.

According to the Centers for Disease Control, as of Tuesday, 683 people in 46 states have been sickened in the outbreak. Nine deaths may also be attributable to the outbreak.

In response, consumers have been pulling back on their spending on peanut butter, limiting the market for food companies and peanut producers.

On Tuesday, research firm Nielsen said a recent four-week period marked the lowest sales of jarred peanut butter in the three years the company has tracked the U.S. food, drug, and mass merchandisers segment, which includes Wal-Mart Stores Inc., the nation’s largest retailer.

The pullback comes even as jarred peanut butter, for the most part, has not been involved in the recalls.

All this is shaping up to hurt the nation’s peanut farmers, Koehler said. He also was to be speaking on behalf of the Southern Peanut Farmers Federation, which represents peanut farmers in Alabama, Florida, Georgia and Mississippi, who make up about three-fourths of the nation’s peanut production.

Koehler said due to the slumping market for peanut products, sales are tough for companies that shell peanuts and farmers who grow peanuts are not getting contracts guaranteeing their purchase. That makes it difficult for them to anticipate their business and decide whether they should grow other crops, like corn, which must be planted earlier.

According to research done by the National Center for Peanut Competitiveness at the University of Georgia’s College of Agriculture, Koehler said it was unlikely peanut farmers would generate enough cash flow this year given expected pricing and production acreage. Growers anticipate reducing their acreage by at least one-third, which all when taken together could mean economic losses of $1 billion in rural America due to the recall, he said.

The subcommittee was set to hear testimony from other small businesses affected by the recalls, speaking on behalf of dairy businesses, food marketers, restaurants and others. Also testifying before the committee were representatives from the Department of Agriculture and the Food and Drug Administration.

“The losses for restaurants, grocers, candy and ice cream manufacturers and other small businesses have yet to be tallied, to say nothing of the horrific human tragedy,” Rep. Kathy Dahlkemper, D-Pa., the subcommittee chairwoman, said in a statement.