FALL AAFCO REGULATORY UPDATES - BALCHEM CORP

Financial Performance:

• The provided transcript is a regulatory update presentation by the Association of American Feed Control Officials (AFCO) and does not contain financial data, revenue figures, earnings, or profit margins for Balchem, AFCO, or any specific commercial entity.

Guidance and Future Outlook:

• 2027 Official Publication: New ingredient definitions, including rice protein concentrate, pomegranate pomace, and updated fish/aquaculture definitions, will be included in the 2027 edition (available for pre-order).
• Regulatory Deadlines: The FDA's proposed GRAS rule comment period closes December 9th; a final rule could emerge in 2027.
• Legislative Watch: The Senate Ag Committee advanced "Innovative Feed Act" language within the Farm Bill 2.0; the PER Act remains in the House Appropriations Bill (HR 8646) with potential detrimental preemption of state labeling authority.
• Future Initiatives: AFCO is piloting a voluntary label review program and ingredient certification program (using an AFCO seal) in 2027.

Business Segments and Product Lines:

• New Ingredients: Approved via AFCO's SRIS process for potential 2027 inclusion include serine endopeptidase enzyme preparation and grass-derived alkali lignin (pending January membership vote).
• Cat Food Profiles: New maximum phosphorus limits (5g/1000 kcal ME; 1g/1000 kcal from highly soluble phosphates) and a minimum 1:1 calcium-to-phosphorus ratio established; enforcement discretion policy linked to pet food label modernization timeline extends to 2030.
• Label Modernization: 9 states have adopted new pet food labeling requirements (nutrition facts box, intended use statement, carbohydrate/fiber listing); 13 states are actively working through rulemaking.
• Pet Food Labeling: New voluntary enforcement discretion for the 2024 modernization policy is linked to the calcium/phosphorus updates; potential extension of the 6-year implementation period is under discussion.

Market and Competitive Landscape:

• FDA GRAS Reform: Proposed rule would transform voluntary GRAS notification into a mandatory reporting system; non-compliance increases enforcement scrutiny risk.
• International Harmonization: FDA collaboration with ICCF (International Cooperation for the Convergence of Technical Requirements for the Assessment of Feed Ingredients) aims to align standards with Canada and the EU; AFCO members include global regulators (Canada, Costa Rica).
• State Regulatory Landscape: State regulators face challenges with e-commerce oversight and funding turnover; AFCO promotes harmonization through model bills and coordination with NASDA.

Risks and Challenges:

• GRAS Compliance: Independent GRAS conclusions currently create inconsistency; future mandatory reporting may require firms to document support for existing self-affirmed ingredients.
• Legislative Risk: The PER Act's preemption clause could void state authority over labeling/marketing, shifting burden to FDA and potentially harming consumers.
• Enforcement Volatility: E-commerce growth and rapid market entry of new products challenge regulators' ability to sample and verify compliance.
• Resource Constraints: State feed programs face staff turnover, funding gaps, and regulatory burnout due to multi-agency responsibilities.

Management Commentary and Tone:

• Tone: Austin Therrell (AFCO Executive Director) maintains a collaborative, informative, and forward-looking tone, emphasizing industry engagement and harmonization.
• Confidence: Expresses confidence in the FDA's reorganization improving review consistency and transparency (Policy Manual 1244.3425) and acknowledges the need for industry collaboration on complex issues like collagen and raw pet food definitions.
• Engagement: Urges industry participation in commenting on the FDA GRAS rule and joining AFCO workgroups to shape standards.

Analyst Questions and Answers:

• Collagen: No active AFCO process exists for defining collagen as a primary ingredient; a panel discussion exists for reference, but a sponsor/data provider is required to initiate a review.
• Senior Dog Profiles: AFCO work group found insufficient published research to support a dedicated senior nutrient profile at this time.
• FDA Staffing: FDA is rebuilding CVM staff levels following 2025 losses but has been able to backfill positions.
• Raw Pet Food & HPP: AFCO is establishing a new definition for High Pressure Processing (HPP) to clarify its relationship with "raw" status and potential cellular changes.
• Animal Health Supplements: A new legislative category is being proposed via the Animal Health Supplement Act (NASC) to clarify legal status separate from food or drugs; expected to be introduced in the next Congress.

Other Key Points:

• FDA Organizational Change: CVM split the former Office of Surveillance and Compliance into the Office of Veterinary Product Surveillance and Compliance and the Office of Animal Foods; the Office of Applied Science was dissolved.
• Facility Registration: Food facility biennial registration with FDA is open October 1–December 31 of even-numbered years.
• Training: AFCO offers on-demand and live workshops on medicated feed and pet food labeling; 2027 Mid-Year Meeting to be held in Orlando.
• AFCO Structure: A nonprofit 501(c)(5) with 117 years of history; manages the official publication of feed terms, nutritional standards, and proficiency testing.