A Pennsylvania-based meat processor filed for bankruptcy protection Monday, saying a national controversy over a common filler for ground beef severely curbed consumer demand for its products.
AFA Foods Inc. has become the latest casualty of the beef additive known as "pink slime" as supermarkets across the country phase out the product in the face of consumer complaints. AFA said ground beef demand has dropped sharply in recent weeks, curbing a rebound in sales the company had been counting on. The company produces ground beef, buying the filler known as finely textured beef and grinding it into its products.
The controversy has "dramatically reduced the demand for all ground-beef products," AFA said in documents filed with the U.S. Bankruptcy Court in Wilmington, Del.
Several major supermarkets announced last month they would no longer offer products with the additive. Also, the government gave schools the option of refusing ground beef that included the additive for school lunches.
Falling demand for the additive caused Beef Products Inc., a key maker of the product, to shut down three of its four plants last week. Cargill Inc., the other dominant producer of finely textured beef, has significantly cut back its production, a spokesman said.
Industry officials and governors in states where the filler is produced said finely textured beef is being unfairly maligned. The additive has been used for two decades and declared safe by the U.S. Department of Agriculture.
Still, Phil Lempert, a food industry consultant and editor of SupermarketGuru.com, said "the fight is over" and that the next step for the beef industry is experimentation with other types of filler. Consumers aren't going to accept the product given all the publicity about "pink slime," he added.
"From a PR standpoint, they waited too long," Lempert said.
AFA Foods said it will have to suspend operations at its California facility beginning this week. It has secured $56 million in bankruptcy financing, which it said will allow it to continue the rest of its operations during its Chapter 11 case.
The company had struggled to return to profitability, it said, but had negotiated a debt extension that it said it believed would carry the company through the winter until sales of its products picked up in the spring, when outdoor-grilling season begins. That plan faltered as the "pink slime" controversy erupted, the company said in the bankruptcy court filing.
AFA Investments Inc., the parent company of AFA Foods, claimed $219.6 million in assets and $197.3 million in liabilities as of February 2012 and said it had revenue of $958 million in 2011.