WILMINGTON, Del. – AFA Foods, a ground-beef processor owned by Yucaipa Cos., on Monday sought bankruptcy court protection with a plan to sell some assets after media coverage of “pink slime” cut demand for its products.
The company, based in King of Prussia, Pa., listed assets of $219 million and debt of $197 million in Chapter 11 papers filed Monday in U.S. Bankruptcy Court in Wilmington, Del.
Beef Products Inc., an AFA competitor that treats boneless lean beef trimmings with ammonia hydroxide to kill pathogens, last week temporarily suspended production at three plants because of consumer concerns about the product, dubbed “pink slime” by food activists. U.S. Agriculture Secretary Tom Vilsack said Wednesday that the product, referred to in the industry as lean, finely textured beef, is safe to eat. “Ongoing media attention has called into question the wholesomeness” of the meat, and has “dramatically reduced the demand for all ground beef products,” AFA interim Chief Executive Officer Ron Allen said in court papers.
Ground beef demand will soften in the next several months as consumers shift to meat that doesn’t contain the lean, finely textured beef, said Ann Gurkin, an analyst for Davenport & Co. Last month, the USDA said schools in the government’s lunch program can order ground beef without the product following public pressure to remove it from cafeterias.
Several fast-food restaurant chains stopped using the lean beef, including McDonald’s Corp., the world’s largest restaurant chain, Burger King and Taco Bell. Tyson Foods, the biggest U.S. beef processor after Cargill, said Tuesday it is making “adjustments to accommodate our customers that no longer want” the product added to their ground beef.
Reduced use of the product will further tighten beef supplies, said Gurkin, a Richmond, Va., analyst. U.S. beef production will drop 4.4 percent in 2012 from a year earlier, the USDA forecast March 9.
Given the issue has only come up in the last few weeks, the effect on Tyson’s sales and earnings is unclear, Gurkin said. She said she is “monitoring” it because demand usually rises with the approaching summer grilling season in the United States. Among AFA’s largest unsecured creditors listed in court papers are Orleans International Inc., owed $8.3 million, and Tyson Fresh Meats, owed $3.27 million.
AFA “continues discussions with potential buyers to secure the highest and best outcome for its business,” officials said in a statement. Los Angeles-based Yucaipa, which owns AFA Foods parent AFA Investment Inc., is run by billionaire Ron Burkle.
AFA has about 850 full-time employees and annual revenue of $958 million, according to the statement.