FALL AAFCO REGULATORY UPDATES - BALCHEM CORP

Financial Performance:

• No specific financial data (revenue, earnings, cash flow, debt, or margins) was provided as this is a regulatory update presentation by AFCO, a nonprofit trade association, not a corporate earnings call.

Guidance and Future Outlook:

• 2027 Priorities: Key focus areas include the potential finalization of FDA's GRAS rule, the passage of the "Farm Bill 2.0" with the "Innovative Feed Act," and the introduction of the "Animal Health Supplement Act."
• 2027 Milestones: AFCO's 2027 Official Publication will include new ingredient definitions; the association plans to launch a pilot voluntary label review program in early 2027, potentially transitioning to a fee-based system.
• Future Initiatives: AFCO is developing a voluntary ingredient certification program (allowing the use of an AFCO seal) and a laboratory certification program to validate higher competency levels.
• Regulatory Timelines: FDA's proposed GRAS rule comment period closes December 9; a final rule could be proposed in 2027, though implementation timelines remain uncertain due to the slow nature of federal rulemaking.

Business Segments and Product Lines:

• Ingredient Approvals: Several ingredients are being added to the 2027 AFCO Official Publication, including Zinc L-selenomethionine complex (broilers), xylooligosaccharides (swine/poultry/fish), lytic bacteriophage (pets), and black soldier fly larva products for aquaculture.
• New Definitions: A new broad definition for "natural" now includes "other organisms" and "mine sources"; a new definition for "fish" and "pomegranate pomace" for dogs/cats; and an updated ash maximum for meat meal.
• SRIS Process: Two ingredients (serine endopeptidase enzyme and grass-derived alkali lignin) have successfully passed the new SRIS (Scientific and Regulatory Information Sharing) process and await membership votes in January 2027.
• Cat Food Profiles: Updated nutrient profiles establish a maximum phosphorus limit of 5g/1000 kcal ME (with a 1g limit for highly soluble phosphates) and a minimum calcium:phosphorus ratio of 1:1.

Market and Competitive Landscape:

• Harmonization: AFCO works to standardize feed laws across U.S. states via model bills and collaborates internationally through the International Cooperation for the Convergence of Technical Requirements for the Assessment of Feed Ingredients (ICCF) and the International Feed Regulators Meeting.
• Market Trends: Regulators face challenges from the rapid pace of e-commerce and product innovation, making compliance monitoring difficult.
• Adoption Rates: As of the latest survey, 9 states have adopted the new Pet Food Label Modernization requirements, with 13 more in the rulemaking process.

Risks and Challenges:

• FDA GRAS Rule: The proposed rule would convert the voluntary GRAS notification program into a mandatory reporting system; failure to notify could increase enforcement scrutiny despite no pre-market review requirement.
• Legislative Risks: Current language in the House Appropriations Bill (HR 8646) regarding the "PER Act" is viewed by AFCO as potentially detrimental due to its broad preemption of state labeling authority.
• State Capacity: State regulators face funding shortages, staff turnover, and burnout, often requiring them to manage multiple regulatory portfolios (feed, pesticides, human food).
• Data Gaps: Lack of sufficient published research currently prevents the establishment of specific nutrient profiles for senior dog foods.

Management Commentary and Tone:

• Tone: Austin Therrell (Executive Director, AFCO) maintained a constructive, informative, and collaborative tone, emphasizing the association's role in bridging regulators and industry.
• Confidence: Management expressed confidence in the industry's ability to adapt to changes like label modernization and SRIS, though acknowledged the uncertainty surrounding federal regulatory timelines.
• Collaboration: Emphasized a strong commitment to international cooperation and the need for industry input on upcoming rules.

Analyst Questions and Answers:

• GRAS Comments: AFCO will share its final comments on the FDA GRAS proposal with the industry prior to the December 9 deadline to aid alignment.
• Collagen: No active process to define collagen as a primary ingredient in standard foods yet; a past panel discussion is available for review, but a sponsor is needed to initiate a formal definition process.
• Senior Dog Profiles: Current data is insufficient to support a dedicated senior dog nutrient profile; the topic remains under periodic review.
• FDA Workforce: FDA CVM is rebuilding staff levels after 2025 losses, with improved hiring and internal best practices to reduce review burdens.
• Raw Pet Food: A new work group will define the relationship between "raw" and High-Pressure Processing (HPP), potentially creating an intermediate definition due to cellular changes induced by HPP.
• Animal Health Supplements: NASC is finalizing a bill to create a new legal category for these products, expected to be introduced in the next Congress in 2027.
• PER Act Impact: If passed with current language, the PER Act's preemption clause could void state-level labeling and marketing provisions, shifting authority primarily to FDA, which AFCO views as detrimental given FDA's current resource constraints.

Other Key Points:

• FDA Reorganization: FDA-CVM has reorganized under the "Simple Reform" plan, splitting the former Office of Surveillance and Compliance into the Office of Veterinary Product Surveillance and Compliance and the new Office of Animal Foods.
• Facility Registration: Reminder that even-numbered year food facility registrations (Oct 1–Dec 31) are open and mandatory under Section 415 of the FD&C Act.
• Educational Resources: AFCO offers on-demand workshops (including previous pet food labeling content), quarterly newsletters, and plans to launch a new website update to facilitate industry engagement.
• Upcoming Events: AFCO's mid-year meeting is scheduled for January in Orlando; upcoming "Real Science" webinars by Balchem are announced for November and December.