FALL AAFCO REGULATORY UPDATES - BALCHEM CORP

Explicit Guidance:

• No specific financial guidance (revenue, earnings, margins, capex, etc.) provided by the company or industry.
• AFCO does not issue forward-looking financial statements; focus is on regulatory and programmatic timelines.

Business-Segment Outlook:

• Ingredient Approvals: Two ingredients (serine endopeptidase enzyme preparation; grass-derived alkali lignin) are anticipated to receive full AFCO membership approval in January 2027 following committee and board review, with publication in the spring 2027 revised Official Publication.
• New Definitions: New definitions for "high pressure processing" (HPP) and "fish" are scheduled for membership vote in January 2027; a new definition for "raw" pet food in relation to HPP is planned for a work group discussion in 2027.
• Regulatory Updates: A new "voluntary label review program" is being considered as a 2027 pilot (free for 300 products, capped at 10–12 per company), potentially transitioning to a fee-based system thereafter. An "ingredient certification program" (voluntary audit for AFCO seal usage) and a "laboratory certification program" are also under consideration for 2027 launch.
• Cat Food Profiles: New maximum phosphorus limits (5g/1000 kcal ME total; 1g/1000 kcal ME from highly soluble phosphates) and a new 1:1 calcium-to-phosphorus ratio are set to be codified in the 2027 Official Publication.
• Enforcement Discretion: Current enforcement discretion regarding updated feline calcium/phosphorus profiles is linked to the Pet Food Label Modernization policy (running until 2030), though the Association notes these could be decoupled if label modernization is extended.

Market and Competitive Outlook:

• Label Modernization: Adoption of new pet food labeling requirements (nutrition facts box, intended use statement, carbohydrate/fiber listing) is currently at 9 states with 13 more in the rulemaking process; a large majority of states report seeing new compliant labels in the market.
• E-Commerce Challenges: Industry and regulators anticipate continued difficulty in monitoring and sampling products due to the rapid growth of e-commerce distribution channels.
• Ingredient Certification: New voluntary certification programs for ingredients and laboratories aim to create market differentiation and verify compliance with AFCO definitions and safety standards.

Macro / Industry Outlook:

• Legislative Watch (2027):
  • Innovative Feed Act: Expected to be reviewed for inclusion in the next Farm Bill to update FDA's review process for "zoo technical" feed additives approved in other countries; House version currently lacks this language.
  • PER Act: Current language in House HR 8646 (containing broad preemption clauses regarding state labeling authority) is viewed as detrimental by AFCO and NASDA; industry monitoring for potential revision or removal in future funding bills.
  • Animal Health Supplement Act: Potential new legislation anticipated in 2027 (new Congress) to create a distinct legal category for animal health supplements, addressing current drug/food classification ambiguities.
• FDA Regulatory Changes: FDA's proposed GRAS rule (mandatory reporting) is expected to be finalized potentially in 2027 (timeline uncertain due to comment period and federal register publication rules); failure to notify under the new rule could increase enforcement scrutiny.
• FDA Restructuring: FDA-CVM has split the Office of Surveillance and Compliance into the Office of Veterinary Product Surveillance and Compliance and the Office of Animal Foods; internal review timelines and consistency are expected to improve via new manuals and a second amendment opportunity in the GRAS process.
• International Harmonization: Continued collaboration via the ICCF (International Cooperation for the Convergence of Technical Requirements for the Assessment of Feed Ingredients) to align US, EU, and Canadian standards, facilitating cross-border ingredient movement.

Strategic Initiatives:

• AFCO Pilot Programs: Launching a 2027 pilot for voluntary label reviews and developing frameworks for ingredient and laboratory certification to add value to compliance verification.
• Work Groups: Establishment of a new work group in 2027 to define "raw" pet food in the context of HPP processing to address cellular-level changes and classification gaps.
• Member Engagement: Expansion of online resources, including on-demand pet food labeling workshop materials and a new website update in 2027 to facilitate industry involvement in expert panels and working groups.

Risks and Headwinds to Outlook:

• Legislative Uncertainty: The potential passage of the PER Act in its current form could preempt state labeling authority, creating legal conflicts and burdens on understaffed state regulators and the industry.
• Regulatory Timelines: FDA's final GRAS rule timeline is uncertain ("glacier speed"), with potential delays beyond 2027; uncertainty remains regarding the finalization of the Innovative Feed Act and Animal Health Supplement Act.
• Resource Constraints: State regulatory programs face challenges with funding, staffing, and turnover, leading to potential burnout and inconsistent enforcement capabilities.
• Implementation Risks: Potential conflict between the Pet Food Label Modernization timeline and the new calcium/phosphorus nutrient profile implementation, which could require decoupling or extension of deadlines.
• Market Monitoring: Difficulty in tracking new products entering the market via e-commerce creates enforcement risks for regulators and compliance risks for companies.

Management Tone on the Future:

• Cautious Optimism: Tone suggests active monitoring and preparation for significant regulatory shifts (GRAS, label modernization, new legislation) while acknowledging the slow pace of government rulemaking.
• Collaborative Approach: Emphasis on industry engagement, data sharing, and international harmonization (ICCF, global meetings) to navigate rapid technological changes and market fragmentation.
• Transparency: Commitment to publishing new policies (e.g., manual 1244.3425) to reduce uncertainty in FDA review timelines and disclosure requirements.

Miscellaneous:

• Timeline Reference: Key events (AFCO meetings, legislative reviews, GRAS comment deadlines) are anchored to the 2027 calendar year, specifically the mid-year meeting in Orlando in January 2027.
• Resource Availability: AFCO Official Publication 2027 is available for pre-order; digital tools (virtual assistant, labeling guides) are being updated for 2027 access.