Fall AAFCO Regulatory Updates - BALCHEM CORP

Financial Performance:

• The transcript is a regulatory update presentation by the Association of American Feed Control Officials (AFCO) and does not contain financial performance data, revenue figures, earnings, or profit margins for a specific corporation.
• AFCO is a nonprofit 501(c)(5) organization funded by state regulators and members, with no discussion of corporate debt, cash flow, or deferred revenue.

Guidance and Future Outlook:

• 2027 Focus: Key regulatory milestones to watch include the potential finalization of the FDA's proposed GRAS rule (deadline for comments Dec 9), the passage of the Farm Bill (potentially including Innovative Feed Act language), and the potential introduction of the Animal Health Supplement Act.
• Enforcement Discretion: The current pet food label modernization enforcement discretion period is set to run until 2030, though it may be decoupled from future label modernization extensions if dietary fiber issues arise.
• AFCO Initiatives: AFCO is planning a voluntary 2027 label review pilot (free for up to 300 products, capped at 10-12 per company) transitioning to a fee-based system, alongside potential new ingredient and laboratory certification programs.
• Upcoming Votes: January 2027 membership votes will cover nonanoic acid, hydroxypropyl cellulose, various mineral salts, and a new definition for High-Pressure Processing (HPP) in relation to raw pet food.

Business Segments and Product Lines:

• New Ingredients: The 2027 AFCO Official Publication will include new ingredients such as zinc L-selenomethionine complex (broilers), synthetic sodium alumina silicate (dairy), xylooligosaccharides (swine/poultry/fish), lytic bacteriophage (pets), tagetes extract (dogs/cats), condensed algal residue (beef), beta-mannanases (swine), and rice protein concentrate (dogs/cats).
• Pet Food Standards: Updated nutrient profiles for cats now include a maximum phosphorus of 5g/1000kcal (with a 1g limit for highly soluble phosphates) and a new minimum calcium-to-phosphorus ratio of 1:1.
• Labeling Requirements: Adoption of pet food label modernization continues, with 9 states fully adopted and 13 in process; new requirements include a nutrition fax box, intended use statements on the principal display panel, and total carbohydrate/dietary fiber listing.
• Raw Pet Food: A new work group is being formed to define "raw" specifically in the context of High-Pressure Processing (HPP) to address cellular changes and potential intermediate definitions.

Market and Competitive Landscape:

• Regulatory Landscape: The market is shifting toward mandatory FDA GRAS notifications, increasing compliance documentation burdens despite the voluntary nature of the current program.
• International Harmonization: AFCO collaborates with the International Feed Regulators Meeting (IFRF) and the International Cooperation for the Convergence of Technical Requirements (ICCF) to align standards across the US, EU, Canada, and other regions, facilitating cross-border ingredient acceptance.
• State Adoption: While federal guidelines exist, state-level adoption of AFCO model regulations varies, creating a fragmented enforcement environment that AFCO works to harmonize through its model bills.

Risks and Challenges:

• E-Commerce: Regulators face significant challenges tracking and sampling products sold via rapidly shifting e-commerce distribution channels.
• Staffing and Funding: State feed programs suffer from staffing turnover, funding gaps, and employee burnout due to the broad responsibilities of regulators (covering feed, pesticides, human food, etc.).
• Legislative Uncertainty: The potential passage of the PER Act (in the House Appropriations Bill) poses a risk of preempting state authority over labeling and marketing, potentially shifting enforcement burdens to an understaffed FDA.
• Speed of Innovation: The rapid pace of product development (genomics, AI) makes it difficult for regulators to keep compliance standards current.

Management Commentary and Tone:

• Tone: Austin Therrell (Executive Director, AFCO) maintained a professional, informative, and collaborative tone, emphasizing transparency and industry partnership.
• Confidence: Management expressed confidence in the evolving internal processes at FDA-CVM (specifically the new policy manual and timelines) and the collaborative nature of the ICCF.
• Engagement: Strong emphasis was placed on industry participation, urging companies to submit comments on the FDA GRAS rule and to volunteer for AFCO workgroups.

Analyst Questions and Answers:

• GRAS Comments: AFCO plans to release its official comments on the proposed FDA GRAS rule before the December 9th deadline to help industry align their responses.
• Senior Dog Profiles: A study concluded that current published research is insufficient to establish a dedicated nutrient profile for senior dogs.
• Collagen Status: No active review process exists for collagen as a primary ingredient; a sponsor would need to provide data to initiate a definition, though ICCF documents are considered during reviews.
• FDA Reorganization: FDA-CVM is backfilling positions lost in 2025 and has reorganized into specialized offices (Animal Foods and Veterinary Product Surveillance/Compliance) to improve efficiency.
• Raw/HPP Definition: A new definition for HPP was approved by the committee and will be voted on in January to clarify its relationship with "raw" food definitions.
• Animal Health Supplements: The Animal Health Supplement Act is currently in the drafting/lobbying phase by NASC, expected to be introduced in the new Congress in January 2027.

Other Key Points:

• FDA Simple Reform: The FDA has reorganized CVM to streamline functions, separating surveillance/compliance for drugs from pre-market reviews for animal foods.
• Facility Registration: Food facilities must renew registrations with the FDA between October 1 and December 31 of even-numbered years.
• SRIS Process: Two ingredients (serine endopeptidase enzyme and grass-derived alkali lignin) were the first to move through the AFCO SRIS (Scientific Review and Innovation System) process and are awaiting final membership votes in January.
• Resources: AFCO offers webinars, workshops (medicated feed labeling, pet food labeling), and digital tools (virtual assistant) for industry education.
• Upcoming Meetings: The 2027 Mid-Year Meeting is scheduled for January in Orlando, Florida.