FALL AAFCO REGULATORY UPDATES - BALCHEM CORP

Financial Performance:

• The transcript is a regulatory update presentation and does not contain financial data, revenue figures, earnings, or profit margins for Balchem or AFCO, as AFCO is a non-profit 501(c)(5) organization.

Guidance and Future Outlook:

• 2027 Regulatory Milestones: Key focus for 2027 includes the potential publication of a final FDA GRAS rule, the implementation of a voluntary label review pilot program, and the potential launch of ingredient and laboratory certification programs by AFCO.
• Legislative Watch: Industry is monitoring the "Innovative Feed Act" language in the Senate Farm Bill version (advanced September), the "PER Act" in House Appropriations Bill HR 8646, and the proposed "Animal Health Supplement Act."
• Adoption Timelines: Pet food label modernization changes are currently in a six-year enforcement discretion period (2024–2030); while linked to the label modernization policy, AFCO notes this specific timeline may remain fixed even if label modernization is extended.
• Ingredient Definitions: New definitions for raw pet food, High-Pressure Processing (HPP), and specific nutrients are scheduled for voting in January 2027.

Business Segments and Product Lines:

• New Ingredient Approvals: The 2027 AFCO Official Publication will include 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 mannan (swine), rice protein concentrate (dogs/cats), and a new definition for pomegranate pomace.
• SRIS Process: Two initial ingredients (serine endopeptidase enzyme, grass-derived alkali lignin) passed through the Sustainable Feed Ingredients and Resources (SRIS) pilot program; pending final membership vote in January.
• Cat Food Nutrients: New maximum phosphorus limit of 5g/1000kcal ME (with <1g from highly soluble sources) and a new 1:1 minimum calcium-to-phosphorus ratio established for feline diets.
• Labeling Updates: Mandatory pet nutrition facts box, intended use statement on the principal display panel, and listing of total carbohydrates and dietary fiber are part of the 2024 model regulations.
• E-commerce: New work groups established to address the definition of "raw" and the interaction between raw status and High-Pressure Processing (HPP).

Market and Competitive Landscape:

• FDA GRAS Rule Proposal: The FDA has proposed transforming the voluntary GRAS notification program into a mandatory reporting system; firms must submit notifications within a one-year transition period to avoid increased enforcement scrutiny.
• State Adoption: As of the latest survey, 9 states have adopted the new pet food label modernization requirements, with 13 states currently working through rulemaking.
• Global Collaboration: AFCO is expanding international engagement via the International Feed Regulators Meeting and partnerships with the International Cooperation for the Convergence of Technical Requirements (ICCF), involving regulators from Canada, the EU, and the US.
• Market Speed: Regulators cite the rapid speed of e-commerce and new product launches as a primary market shift, complicating sampling and compliance monitoring.

Risks and Challenges:

• Regulatory Uncertainty: The timeline for the final FDA GRAS rule is unpredictable, with a potential final rule in 2027 or later.
• Legislative Threats: Current PER Act language includes broad preemption clauses that could strip state regulators of labeling and marketing oversight, which AFCO views as detrimental to the industry and consumers.
• Resource Constraints: State feed programs face challenges with staff turnover, funding shortages, and burnout due to multiple regulatory responsibilities (e.g., pesticides, human food).
• E-Commerce Compliance: The shift to e-commerce creates significant challenges for regulators in identifying, sampling, and ensuring compliance of products in distribution.
• Scientific Gaps: Lack of sufficient published research currently prevents the establishment of specific nutrient profiles for senior dogs.

Management Commentary and Tone:

• Tone: Austin Therrell (Executive Director, AFCO) maintained a professional, transparent, and forward-looking tone, emphasizing collaboration, harmonization, and adaptability to technological changes.
• Confidence: Management expressed confidence in the new FDA procedural changes (e.g., published timelines, second amendment opportunities) to reduce review burdens and improve consistency.
• Industry Engagement: Emphasized the importance of industry participation in work groups, expert panels, and public comment periods to shape regulatory outcomes.

Analyst Questions and Answers:

• GRAS Rule Comments: AFCO is finalizing a collective position on the proposed GRAS rule and plans to share it with the industry prior to the December 9th comment deadline.
• Collagen Definition: No current active review; AFCO noted a need for a sponsor to provide data and a clear definition request.
• Senior Dog Profiles: AFCO work group concluded there is insufficient data to support a dedicated senior nutrient profile at this time.
• FDA Staffing: FDA CVM is backfilling positions lost in 2025 and rebuilding capacity, though not yet fully staffed.
• AFCO Services: AFCO is piloting a voluntary label review program (cap 10-12 products/company) for 2027 and considering an ingredient certification program with an "AFCO seal" for compliant ingredients.
• International Scope: AFCO bylaws allow for non-North American government members, reflecting a shift toward global regulatory harmonization.

Other Key Points:

• FDA CVM Reorganization: The FDA's Center for Veterinary Medicine (CVM) split its Office of Surveillance and Compliance into the Office of Veterinary Product Surveillance and Compliance and the Office of Animal Foods to improve specialization.
• Facility Registration: Food facility biennial registration is open from October 1 to December 31 for even-numbered years.
• Publications: The 2027 AFCO Official Publication is available for pre-order; it serves as the comprehensive list of approved feed ingredients.
• Training: AFCO offers workshops on medicated feed labeling and pet food labeling, with plans to release on-demand resources in 2027.
• ICCF Alignment: AFCO encourages the use of ICCF technical documents in ingredient reviews to ensure global consistency in safety assessments.