One Bad Apple Can Spoil the Whole Company

Snokist Growers, a century-old Yakima, Wash., cooperative of fruit growers, has been trying to turn bad apples into applesauce. But the company had to file for Chapter 11 bankruptcy protection Wednesday with plans to liquidate after sales couldn’t recover from allegations that it violated food-safety rules.

During an inspection earlier this year of Snokist Grower’s warehouse, the Food and Drug Administration found eight instances between January 2010 and December 2010 in which the company was reprocessing applesauce that was moldy by using methods that the FDA said doesn’t effectively kill the toxins. The inspection was prompted by an incident in May 2011 when Snokist applesauce, which at the time was part of the U.S. Department of Agriculture school-lunch program, made 18 North Carolina schoolchildren sick. All the children recovered, but the company was forced to recall the product, it said.

In court documents, Snokist blamed the Food and Drug Administration’s actions for lowering sales too dramatically for them to continue operating.

Despite the recall, Snokist said in a press release, it had never used “reconditioned” applesauce to fill orders for the USDA. It also stood by its process for removing mold in its applesauce.

“While Snokist has worked diligently with the FDA in an attempt to minimize the damage to the company and to correct any perceived operational deficiencies, the FDA has not reacted in a manner that is consistent with attempting to minimize the loss of sales to the company,” it said in court documents.

According to documents filed with the U.S. Bankruptcy Court in Spokane, Snokist claimed $69 million in assets and between $50 million and $100 million in liabilities. It blamed the FDA for causing it to lose business from the U.S. Food Service and the USDA. Gross sales fell in 2011 to $29 million from $50 million the previous year.

The company owes lenders Rabo AgriFinance Inc. and KeyBank more than $25 million, according to court documents. The majority of creditors are individual grower-members of the cooperative, owed more than $100,000 each.

Snokist, which had 140 members and employed 610 workers in 2011, said it expects the liquidation of its assets to be enough to fully repay creditors.