Fall AAFCO Regulatory Updates - BALCHEM CORP

Explicit Guidance:

• None. The transcript contains no financial revenue, earnings, margin, or capital expenditure guidance for Balchem, AFCO, or the broader market.

Business-Segment Outlook:

• Pet Food Label Modernization: Implementation of new labeling requirements (nutrition fact box, intended use statement, total carbohydrates, dietary fiber) is progressing; 9 states have already adopted changes, with 13 others in the rulemaking process. A large majority of states report seeing new compliant labels in the market.
• Ingredient Approvals (2027): The 2027 AFCO Official Publication will include new definitions and ingredients, specifically: Zinc L-selenomethionine complex, synthetic sodium alumina silicate, xylooligosaccharides, lytic bacteriophage, Tagetes extract, condensed algal residue solubles, beta-mannan, rice protein concentrate, pomegranate pomace, black soldier fly larva (aquaculture species), and a new ash maximum for meat meal.
• New Processes (SRIS): Two ingredients (serine endopeptidase enzyme, grass-derived alkali lignin) successfully moved through the SRIS (Scientific Review and Input System) process and are scheduled for a full membership vote at the mid-year meeting in January, potentially entering the Spring revised publication.
• Regulatory Pilots (2027): AFCO plans to launch a voluntary label review pilot program in early 2027, offering free reviews for up to 300 products (capped at 10–12 per company), transitioning later to a fee-based system.
• New Programs: Potential launch of voluntary ingredient certification (using the AFCO seal) and laboratory certification programs in 2027 to verify compliance with definitions and safety standards.
• Training: Pet food labeling workshops are scheduled for the 2027 mid-year meeting in Orlando, with on-demand materials for previous workshops planned for release in 2027.

Market and Competitive Outlook:

• Raw Pet Food & HPP: AFCO plans to stand up a work group to redefine "raw" in the context of High Pressure Processing (HPP), exploring an intermediate definition between "cooked" and "raw" due to cellular changes induced by HPP. A new definition for HPP is anticipated for the January vote.
• e-Commerce Challenges: Regulators anticipate increased difficulty in monitoring market compliance due to the speed of e-commerce distribution channels and the rapid introduction of new products, creating challenges for sampling and enforcement.
• Collagen: No active process is currently underway to define collagen as a primary ingredient in standard pet foods, pending a sponsor and sufficient published data to support the definition.

Macro / Industry Outlook:

• FDA GRAS Rule: A final rule on the GRAS notification program is anticipated in 2027, though timing remains uncertain. The rule would transform the voluntary notification system into a mandatory reporting system; a one-year transition period is proposed for existing ingredients. Public comments on the proposed rule are open until December 9.
• Innovative Feed Act: The Senate version of the Farm Bill (advanced September) includes language to update FDA's review process for technical feed additives (e.g., ingredients with benefits beyond taste/nutrition). It is unknown if this language will survive the House version or pass in the current "lame duck" session.
• PER Act (Pet Emergency Rule): Language regarding the Pet Emergency Response Act is included in House Appropriations Bill HR 8646. If passed, the current iteration contains broad preemption clauses that could override state authority over labeling and marketing, potentially voiding current state model bill provisions in those areas.
• Animal Health Supplement Act: The NASC is developing a bill to carve out a new legal category for animal health supplements (currently treated as low-enforcement animal drugs), expected to be introduced in the new Congress starting in January.
• FDA Reorganization: The FDA CVM reorganization under "Simple Reform" has split the Office of Surveillance and Compliance into two specialized offices (Veterinary Product Surveillance & Compliance; Animal Foods) and dissolved the Office of Applied Science, aiming for greater specialization without changing front-line interactions.
• Facility Registration: Even-numbered years trigger a mandatory biennial food facility registration renewal period (Oct 1 – Dec 31) under Section 415 of the FD&C Act.

Strategic Initiatives:

• International Harmonization: AFCO is expanding international engagement beyond North America, participating in the International Feed Regulators Meeting and regional meetings in Brazil and Latin America to harmonize global standards.
• ICCF Collaboration: Continued alignment with the International Cooperation for the Convergence of Technical Requirements for the Assessment of Feed Ingredients (ICCF) to ensure FDA acceptance of common guidance documents, facilitating cross-border ingredient movement.
• Data & Process Improvements: FDA is implementing earlier internal review timelines, a second amendment opportunity for GRAS submissions, and a new Policy and Procedures Manual (1244.3425) to provide transparent review benchmarks.
• Membership Expansion: AFCO is actively seeking industry technologists and subject matter experts to join work groups and expert panels, with enhanced website updates and quarterly newsletters planned for 2027 to facilitate engagement.

Risks and Headwinds to Outlook:

• Regulatory Uncertainty: Potential decoupling of the pet food label modernization timeline from the calcium/phosphorus update timelines if the modernization policy is extended beyond 2030.
• GRAS Compliance Risk: Failure to submit notifications under the new mandatory FDA GRAS rule could increase the likelihood of enforcement action or scrutiny, particularly for firms relying on self-affirmed GRAS conclusions.
• State Preemption Risk: If the PER Act passes with current preemption language, it could strip state regulators of authority over pet food labeling, creating enforcement gaps given FDA's current staffing constraints.
• Resource Constraints: State regulatory programs face challenges with turnover and funding, leading to potential capacity issues in fully staffing and supporting feed programs.
• Enforcement Timing: The 2027 AFCO Official Publication is available for pre-order, but the exact timing of the final rule on the GRAS notice program remains "up in the air," with potential delays beyond 2027.

Management Tone on the Future:

• Cautious Optimism: Management expresses excitement about new processes (SRIS), pilot programs, and international harmonization, while acknowledging the "glacier speed" of government rulemaking.
• Proactive Stance: There is a strong emphasis on encouraging industry participation in rulemaking (e.g., GRAS comments), joining AFCO work groups, and preparing for 2027 regulatory changes.
• Collaborative Approach: The tone highlights a shift toward more collaborative industry-regulator relationships (FDA's new "second amendment" opportunity, AFCO's voluntary pilot programs) to improve efficiency and compliance.
• Uncertainty on Legislation: A clear distinction is made between supported legislation (Innovative Feed Act) and detrimental legislation (current PER Act iteration), with active monitoring of the legislative landscape through the new Congress in January.

Miscellaneous:

• Meeting Schedule: AFCO mid-year meeting scheduled for January in Orlando, Florida.
• Balchem Events: Upcoming Real Science Lecture Series includes presentations by Dr. Elaine Burgers (Nov 24), Dr. Francisco Penegaricano (Dec 1), and Dr. Lani Hobbs (Dec 8).