FALL AAFCO REGULATORY UPDATES - BALCHEM CORP

Financial Performance:

• The transcript contains no financial data, revenue figures, earnings reports, or cash flow statements, as the presentation focuses exclusively on regulatory updates and industry standards rather than corporate financial performance.

Guidance and Future Outlook:

• 2027 Outlook: Key focus areas include the potential finalization of the FDA's proposed GRAS rule, the advancement of the "Innovative Feed Act" within the Farm Bill, and the potential introduction of the "Animal Health Supplement Act" in the new Congress starting in January.
• Regulatory Deadlines: The FDA's comment period for the proposed GRAS rule closes on December 9; a final rule could be proposed in 2027 or later.
• AFCO Initiatives: AFCO is considering a voluntary label review pilot program (potentially in early 2027) and a voluntary ingredient certification program that could allow the use of an AFCO seal for compliant ingredients.
• Timeline: The 2027 edition of the AFCO Official Publication is available for pre-order, with new ingredients and definitions to be finalized following the January mid-year membership vote.

Business Segments and Product Lines:

• New Ingredient Approvals (2027 OP): Recent approvals include Zinc L-selenomethionine complex (broilers), synthetic sodium alumina silicate (dairy), lytic bacteriophage (pets), and rice protein concentrate (pets).
• SRIS Process: The first two ingredients via the SRIS (Scientific Review of Ingredient Safety) process are Serine endopeptidase enzyme preparation and grass-derived alkali lignin; these await final membership vote in January.
• Pet Food Standards: New maximum phosphorus limits (5g/1000kcal, with <1g for highly soluble phosphates) and a new minimum Calcium:Phosphorus ratio of 1:1 established for cat food.
• Definition Updates: Expanded definition of "natural" to include other organisms and mine sources; new broad definition for "fish"; inclusion of aquaculture species for black soldier fly larva oil.
• Upcoming Votes (Jan 2027): Nonanoic acid, hydroxypropyl cellulose, specific calcium salts, chromium methionine chelate, and a new High Pressure Processing (HPP) definition.
• Label Modernization: Pet food label modernization changes (nutrition fact box, intended use statement, carb/fiber listing) have been adopted by 9 states, with 13 states currently in the rulemaking process.

Market and Competitive Landscape:

• Global Collaboration: AFCO actively collaborates with international regulators through the International Feed Industry Federation and has expanded participation to include Costa Rica and the Canadian Food Inspection Agency.
• State-Level Fragmentation: A key market challenge remains the variation in state adoption of federal standards, with e-commerce creating difficulties in monitoring distribution channels and enforcing compliance.
• FDA Harmonization: FDA is collaborating with the ICCF (International Cooperation for the Convergence of Technical Requirements for the Assessment of Feed Ingredients) to align US, EU, and Canadian standards.

Risks and Challenges:

• Proposed GRAS Rule: A potential shift from voluntary to mandatory FDA notification for GRAS substances, creating increased documentation and compliance burdens for companies relying on self-affirmed GRAS status.
• Legislative Uncertainty: The PER Act (included in HR 8646) poses a risk of federal preemption over state labeling laws, which could disrupt the current regulatory framework where states handle most label reviews.
• Regulatory Capacity: FDA-CVM is still rebuilding staffing levels after 2025 departures; state regulators face burnout due to turnover, funding limitations, and multi-hat responsibilities (e.g., regulating pesticides alongside feed).
• E-Commerce: The rapid speed of digital distribution makes it difficult for regulators to sample and verify compliance of new products entering the market.

Management Commentary and Tone:

• Tone: The speaker (Austin Therrell, Executive Director of AFCO) maintains a collaborative, transparent, and informative tone, emphasizing partnership between regulators and industry.
• Confidence: Management expresses confidence in the upcoming label review pilot and ingredient certification programs as mechanisms to add value and ensure compliance.
• Transparency: Acknowledges the "glacial" speed of government rulemaking while encouraging industry participation in comment periods to shape outcomes.

Analyst Questions and Answers:

• Senior Dog Profiles: AFCO determined there is currently insufficient published research to support a dedicated senior dog nutrient profile.
• Collagen: No active process to define collagen as a primary standard food additive yet; requires a sponsor and data submission.
• Raw HPP: A work group is forming to define the relationship between "raw" and High Pressure Processing, potentially creating an intermediate definition to address cellular changes.
• GRAS Comments: AFCO plans to release its official comment draft regarding the GRAS rule before the December 9 deadline to align industry responses.
• PER Act Impact: If passed in current form, the PER Act could void existing state model bill requirements regarding labeling and marketing due to preemption clauses.

Other Key Points:

• FDA Organizational Changes: CVM has split the Office of Surveillance and Compliance into the Office of Veterinary Product Surveillance and Compliance and the new Office of Animal Foods.
• Facility Registration: Food facilities must renew their FDA registrations between October 1 and December 31 of even-numbered years.
• Training Resources: AFCO offers on-demand pet food labeling workshop materials in 2027 and conducts annual workshops on medicated feed labeling.
• Upcoming Events: AFCO's mid-year meeting (where January votes occur) will be held in Orlando in January 2027.