FALL AAFCO REGULATORY UPDATES - BALCHEM CORP

Financial Performance:

• No financial performance data (revenue, earnings, cash flow, etc.) is discussed, as the transcript is a regulatory update presentation for a non-profit association (AFCO), not a corporate earnings call.

Guidance and Future Outlook:

• 2027 Focus: Key topics for 2027 include the potential publication of a final FDA GRAS rule, the status of the Innovative Feed Act within the Farm Bill 2.0, and the introduction of a new Animal Health Supplement Act.
• AFCO Initiatives: Pilot programs planned for 2027 include a voluntary label review service (potentially fee-based thereafter), an ingredient certification program with an AFCO seal, and a laboratory certification program.
• Legislative Timeline: The PER Act (Pet Exportation/Regulation) language in HR 8646 remains a concern due to potential state preemption; the Animal Health Supplement Act is expected to be introduced in the new Congress starting January.
• Regulatory Adoption: Nine states have adopted Pet Food Label Modernization changes, with 13 others in the rulemaking process; full implementation is expected to continue through 2030.

Business Segments and Product Lines:

• Ingredient Approvals (2027 Edition): New ingredients added include zinc L-selenomethionine (broilers), synthetic sodium alumina silicate (dairy), xylooligosaccharides (swine/poultry/fish), lytic bacteriophage (pets), tagetes extract (dogs/cats), algal residue (beef), and beta mannan (swine).
• New Definitions: Added fish (broad), pomegranate pomace (dogs/cats), and aquaculture species for black soldier fly larva; updated "natural" term to include other organisms and minerals; added ash maximum to meat meal.
• SRIS Process: First two ingredients (serine endopeptidase and grass-derived alkali lignin) moved through the Innovation Campus process pending January membership vote.
• Cat Food Profiles: New maximum phosphorus limit of 5g/1000 kcal ME, new 1:1 Ca:P ratio minimum, and a new footnote limiting soluble phosphates to <1g/1000 kcal ME.

Market and Competitive Landscape:

• Global Collaboration: AFCO participates in the International Feed Regulators Meeting, Feed Latina, and works with ICCF (International Cooperation for the Convergence of Technical Requirements) to harmonize standards across the US, EU, Canada, and other regions.
• State-Level Dynamics: State regulators face challenges with e-commerce distribution, workforce turnover, and funding constraints; most states rely on AFCO's model regulations for enforcement.
• Market Trends: Rapid product turnover via e-commerce and technological advances (AI, genomics) are driving regulatory scrutiny on speed of market entry and compliance visibility.

Risks and Challenges:

• FDA GRAS Rule: Proposed mandatory reporting for GRAS substances could increase documentation burdens and enforcement risks if not filed within the one-year transition period.
• Legislative Threats: Current PER Act language poses a risk by potentially preempting state authority over labeling and marketing, which could overburden the understaffed FDA.
• Operational Challenges: State regulators face burnout due to high turnover and insufficient funding; rapid e-commerce growth complicates sampling and compliance monitoring.
• Scientific Uncertainty: Lack of sufficient published data currently prevents the establishment of a specific senior dog nutrient profile.

Management Commentary and Tone:

• Tone: Austin Therrell maintains a professional, informative, and collaborative tone, emphasizing alignment between regulators, industry, and federal agencies.
• Confidence: High confidence in the efficacy of AFCO's model regulations and the ongoing harmonization efforts; cautious optimism regarding FDA's internal process improvements (manuals, timelines).
• Engagement: Strong emphasis on industry participation via email lists, workgroups, and voluntary audits to maintain relevance and regulatory influence.

Analyst Questions and Answers:

• Labeling Courses: AFCO offers workshops (e.g., medicated feed, pet food) with on-demand material planned for 2027.
• Collagen Review: No current process for defining collagen as a primary ingredient; requires a sponsor and data, though a past panel discussion exists.
• FDA Staffing: FDA CVM is actively backfilling positions lost in 2025 and rebuilding capacity.
• SRIS Timeline: New ingredient approvals via SRIS move from committee to board to full membership vote (January) before publication.
• RAW/HPP Definition: A new definition for "raw" in the context of High Pressure Processing (HPP) is under discussion to address cellular changes and potential contradictions in labeling.
• Comment Alignment: AFCO is finalizing its own comments on the proposed GRAS rule and will share a draft position with the industry before the December 9 deadline.

Other Key Points:

• Organizational Structure: AFCO is a 117-year-old 501(c)(5) nonprofit comprising US state regulators, federal agencies (FDA), and international partners (Canada, Costa Rica).
• FDA Reorganization: The FDA's "Simple Reform" split the Office of Surveillance and Compliance into the Office of Veterinary Product Surveillance and Compliance and the Office of Animal Foods to specialize functions.
• Pet Food Label Modernization: Six-year enforcement discretion period (2024–2030) allows companies time to comply with new label requirements (nutrition fact box, intended use, fiber/carbs).
• Facility Registration: FDA food facility biennial registration is open for the current even-numbered year (Oct 1 – Dec 31).
• Upcoming Events: AFCO Mid-Year Meeting in Orlando, Florida, in January 2027.