FALL AAFCO REGULATORY UPDATES - BALCHEM CORP

Financial Performance:

• No financial performance metrics (revenue, earnings, margins, cash flow, debt) are disclosed as the transcript is a regulatory education session, not a corporate earnings call for a publicly traded entity.

Guidance and Future Outlook:

• 2027 Regulatory Focus: Anticipated finalization of the FDA's proposed GRAS rule; potential inclusion of the "Innovative Feed Act" in the final Farm Bill; introduction of the "Animal Health Supplement Bill" by NASC.
• AFCO Initiatives: Potential launch of a voluntary label review pilot program (capped at 300 products) in early 2027, followed by a fee-based system; development of voluntary ingredient and laboratory certification programs featuring an "AFCO seal."
• Enforcement Timelines: Current pet food label modernization enforcement discretion period is linked to 2030, though future decoupling is possible if the labeling policy is extended.

Business Segments and Product Lines:

• New Ingredients Approved: Zinc L-selenomethionine complex (broilers), synthetic sodium alumina silicate (dairy), xylooligosaccharides (swine/poultry/fish), lytic bacteriophage (pets), Aztec marigold extract (dogs/cats), condensed algal residue (beef), beta mannan (swine), and rice protein concentrate (dogs/cats).
• AFCO SRIS Process: First approval of two ingredients via the Science-Based Regulatory Innovation Service (SRIS) process: serine endopeptidase enzyme and grass-derived alkali lignin (pending final membership vote in January).
• Definition Updates: Broadened definition of "natural" to include other organisms and mining sources; new definition for "fish"; addition of aquaculture to black soldier fly larva standards; maximum ash addition to meat meal definition; new high-pressure processing (HPP) definition proposed.
• Pet Food Profiles: New maximum phosphorus limit (5g/1000 kcal) and minimum calcium-to-phosphorus ratio (1:1) established for cat food; specific limits for highly soluble phosphates (1g/1000 kcal).

Market and Competitive Landscape:

• Regulatory Harmonization: AFCO maintains 117 years of effort to harmonize state feed laws via model bills and works closely with NASDA; participates in International Feed Regulators Meetings (e.g., Brazil, Latin America) to align global standards.
• FDA Restructuring: FDA-CVM reorganized under "Simple Reform," splitting the Office of Surveillance and Compliance into "Office of Veterinary Product Surveillance and Compliance" and "Office of Animal Foods" to improve focus and consistency.
• International Cooperation: Enhanced collaboration with ICCF (International Cooperation for the Convergence of Technical Requirements) to align US, EU, and Canadian feed ingredient assessment standards.

Risks and Challenges:

• GRAS Rule Proposal: FDA's proposal to convert the voluntary GRAS notification program into a mandatory reporting system, potentially increasing enforcement scrutiny for firms using self-affirmed GRAS ingredients without prior notification.
• Legislative Uncertainty: The PER Act (in HR 8646) contains broad preemption language that could override state labeling authority, which AFCO views as detrimental to industry and consumer protection.
• Regulatory Capacity: State regulatory programs face challenges regarding staff turnover, funding constraints, and burnout due to multiple regulatory hats (pesticides, soil, human food).
• Market Dynamics: Rapid speed of product innovation (AI, genomics) and the rise of e-commerce create significant challenges for regulators to track, sample, and enforce compliance on distributed products.
• Data Gaps: Insufficient published research currently exists to support the creation of a dedicated nutrient profile for senior dogs.

Management Commentary and Tone:

• Tone: The presenter (Austin Therrell, AFCO Executive Director) maintains a constructive, informative, and forward-looking tone, emphasizing collaboration between regulators, industry, and international bodies.
• Confidence: High confidence in the ongoing adoption of pet food label modernization (9 states adopted, 13 in process) and the FDA's improved transparency in review timelines via the new Procedures Manual.
• Transparency: AFCO is proactively preparing to share draft comments on the FDA GRAS rule with the industry before the December 9th comment deadline.

Analyst Questions and Answers:

• Labeling Courses: AFCO offers on-demand and live workshops (e.g., medicated feed, pet food labeling) and plans to roll out on-demand material in 2027.
• Collagen Review: No active review for collagen as a standard ingredient; a sponsor would need to provide data to initiate a definition process.
• FDA Staffing: FDA is rebuilding CVM staffing levels and backfilling positions lost in 2025, though full capacity is not yet reached.
• SRIS Process Speed: The process involves committee review, board approval, and a final membership vote, with the first two ingredients expected in the 2027 publication.
• Raw/HPP Definition: A new work group is investigating how High-Pressure Processing affects the definition of "raw," seeking to clarify if HPP products remain "raw" or require an intermediate definition.

Other Key Points:

• AFCO Structure: A 501(c)(5) nonprofit with 117 years of history; members include all US state regulators, federal agencies (FDA), and international partners (Canada, Costa Rica).
• Publication: The 2027 AFCA Official Publication is available for pre-order and will include all new ingredient definitions and the cat food phosphate footnote.
• Upcoming Meetings: AFCO mid-year meeting in Orlando, Florida, in January 2027; 2027 mid-year meeting agenda to include votes on nonanoic acid, hydroxypropyl cellulose, and chromium salts.
• FDA Reform: The "Innovative Feed Act" aims to streamline FDA review for technical feed additives (beyond nutrition/taste) that are approved in other countries.
• Animal Health Supplements: NASC is developing a bill to create a distinct legal category for animal health supplements, separating them from drugs and foods to clarify labeling requirements.