Jeff Koeze's Blog Good Food, Good Business, and the Good Food Business

17Feb/090

Peanut Corporation of America and the Ruin of Being the Low Cost Provider

This is not a defense of PCA or Mr. Parnell.  But from the public coverage I can see exactly how he put himself in a box where shipping bad product might have seemed like a risk worth taking.

The peanut business has been brutally competitive on a price basis for 30 years.  A penny a pound in price can make the difference between keeping business and losing it.  So PCA bought peanuts cheap and produced cheap.  Part of the produce cheap was, it appears, skimping on training, wages, sanitation, and plant maintenance.  The other part was getting raw peanuts in the door and finished product out as fast as possible so as to keep inventory low and cash flow strong.

Everything goes fine for quite awhile.  PCA makes money and grows rapidly.  Then they get a positive salmonella test in the summer of 2006.  At this moment, PCA was effectively out of business.  Here's why:  to deal correctly with that test, given the conditions cited by the FDA at their plant, the plant had to be shut down, essentially be renovated, and then all the equipment cleaned from top to bottom, inside and out.

This is a huge job.  It would take a month or two, minimum.  During that time, all of PCA's customers, used to fast turn around on orders and cheap prices, are long gone.  Could they shift to the Texas plant?  Probably not, given conditions, but especially given freight costs.

PCA was running with no room for error -- and errors in business are inevitable.

PCA was finished when that 2006 test came back -- or at least in deep trouble.  But that is a hard thing to admit.  Maybe a retest -- we've never had a problem before, and labs aren't perfect.  The rationalizing begins,  and is repeated, becoming habit.  PCA keeps digging the hole deeper, like a hooked gambler, until they are busted.  Busted financially, busted legally, and busted ethically.

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