'Pink Slime' Fallout: Ground Beef Company Files For Bankruptcy

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Ground Beef

Ground beef processor AFA Foods filed for bankruptcy protection on Monday, citing the impact of the uproar over a meat filler dubbed "pink slime" by critics.

Meat processors have faced a backlash over the use of an ammonia-treated beef filler they call "finely textured beef." Food activists have campaigned to have it banned, but supporters say the product is safe to eat.

AFA is one of the largest ground beef processors in the United States and produces more than 500 million pounds of ground beef products annually, the company said in documents filed in U.S. Bankruptcy Court in Wilmington, Delaware.

In filing for bankruptcy, it cited "recent changes in the market" for its products and media coverage related to the filler, and said it was seeking a sale of some or all of its assets. AFA owner Yucaipa Companies, the investment firm founded by Ron Burkle, could not immediately be reached for comment.

The backlash over "pink slime" has prompted companies such as Beef Products Inc (BPI) to halt production at some of its plants and has led some big U.S. supermarket operators, including Safeway Inc and Supervalu Inc, to say they will stop buying the ammonia-treated beef.

The impact of the controversy is far-reaching, said Gary Acuff, director of the Center for Food Safety at Texas A&M University in College Station.

"The public view of this product is pretty damaged at this point," Acuff said. "I'm not sure they'll recover from something like this."

Jeremy Russell, of the National Meat Association, said "this is certainly going to have an economic impact on the industry" from cattle ranchers to meat processors, affecting thousands of jobs.

Ground beef makes up a "big part" of the overall meat market, and prices are sure to rise, he said.

The phrase "pink slime" was first used by a former USDA microbiologist, Gerald Zirnstein, who used the term in a 2002 email to co-workers after having toured a BPI plant. The current debate began after celebrity chef Jamie Oliver drew attention to the product.

Some politicians have rallied to the industry's side, including Iowa Governor Terry Branstad, who blasted the celebrity critics.

"This to me is outrageous," Branstad said. "I want to expose the people who are behind this. I don't think Americans need to be misled by a smear campaign."

AFA, based in King of Prussia, Pennsylvania, has plants in California, Georgia, New York, Pennsylvania and Texas. It has about 850 full-time employees. As of December 2011, it posted annual revenue of $958 million.

The company expects to idle the California facility this week to conserve cash and cut unneeded processing capacity under current market conditions, according to a court filing.

AFA said it has $219 million in assets and $197 million in liabilities. AFA also said it has secured a commitment for $56 million in debtor-in-possession financing from its lenders GE Capital and Bank of America.

"An orderly sale through Chapter 11 will unlock value and provide a smooth transition for employees, customers and other business partners," Ronald Allen, interim chief executive of AFA Foods, said in a statement.

The case is In re: AFA Foods Inc, U.S. bankruptcy court, District of Delaware, No: 12-11128.

(Reporting by Tanya Agrawal in Bangalore, Andrew Stern in Chicago and Kay Henderson in Iowa; Writing by Dan Levine in San Francisco; Editing by Martha Graybow, Supriya Kurane)

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