WASHINGTON (Reuters) - The company whose peanut butter and paste has been linked to an outbreak of salmonella food poisoning has been suspended from federal government contracts, the U.S. Agriculture Department said on Thursday.

Family-owned Peanut Corp of America and a subsidiary, Tidewater Blanching LLC, cannot participate in federal contracts for a year, USDA said. The agency also proposed to debar the company from contracts for three years.

“The actions of PCA indicate that the company lacks business integrity and business honesty, which seriously and directly hinders its ability to do business with the federal government,” David Shipman, acting administrator of USDA’s Agricultural Marketing Service, said in a statement.

Peanut Corp of America has 30 days to respond to the proposed debarment, the USDA said.

Stewart Parnell, chief executive of the company, was also removed from a USDA advisory board on quality and handling standards for peanuts, the USDA said.

At least 550 people, half of them children, have become sick and eight people have died in the outbreak. The U.S. Food and Drug Administration and U.S. Justice Department are conducting a criminal investigation.

Congressional investigators have been asked to find out whether any of the products were used in school food programs which provide lunch to an estimated 32.1 million students each day.

The USDA agency that procures food for school and other public nutrition programs has not bought from PCA for more than a year, a spokesman said.

“We have not procured product from them for at least 12 months,” Jonathan Groveman said.

Peanut Corp of America recalled all products made since 2007 at its plant in Blakely, Georgia. The recall has now affected more than 1,300 products, according to the FDA.

USDA identified a small number of products bought for food programs more than a year ago and is working to identify any that might still be stored, said Susan Acker, a spokeswoman for its Food and Nutrition Service.

Schools in California received peanut butter and roasted peanuts made by the company during the recall period, and schools in Idaho and Minnesota received peanuts, Acker said.

There have been no reports of illness from any USDA-purchased peanut products, Acker said.

The department has told schools and state agencies to check food bought outside of the USDA and remove any recalled products, she said.