FALL AAFCO REGULATORY UPDATES - BALCHEM CORP

Financial Performance:

• No financial performance metrics, revenue figures, earnings, or cash flow data are available as this transcript is a regulatory update presentation by the Association of American Feed Control Officials (AFCO), not a corporate earnings report. AFCO is identified as a nonprofit 501(c)(5) organization.

Guidance and Future Outlook:

• AFCO is targeting the publication of new ingredient definitions in the 2027 Official Publication, with specific approvals expected for the 2027 edition.
• The Pet Food Label Modernization policy currently has a six-year enforcement discretion period ending in 2030; AFCO is conducting annual reviews to determine if this timeline will be extended or decoupled from other labeling changes.
• Future regulatory initiatives for 2027 include a potential voluntary label review pilot program (capped at 300 products), a voluntary ingredient certification program allowing the use of an AFCO seal, and a voluntary laboratory certification program.
• Industry participants are advised to monitor the potential finalization of the FDA's proposed GRAS rule, the fate of the Innovative Feed Act in the upcoming Farm Bill, and the introduction of the Animal Health Supplement Act in the new Congress.

Business Segments and Product Lines:

• Ingredient Approvals: New definitions added include Zinc L-selenomethionine complex (broiler chickens), synthetic sodium alumina silicate (dairy), xylooligosaccharides (swine/poultry/fish), lytic bacteriophage (pets), Tagetes extract (dogs/cats), and condensed algal residue solubles (beef).
• Pet Food Specifics: New definitions include rice protein concentrate (dogs/cats), pomegranate pomace (dogs/cats), and expanded aquaculture species for black soldier fly products.
• Revised Nutrient Profiles: Established a maximum phosphorus content of 5g per 1000 kcal ME for cat food, a minimum Calcium:Phosphorus ratio of 1:1, and a new footnote limiting highly soluble phosphate minerals to <1g per 1000 kcal ME.
• SRIS Process: Two ingredients (serine endopeptidase enzyme preparation and grass-derived alkali lignin) recently moved through the new State Regulatory Innovation Streamlined (SRIS) process pending final membership votes.
• Pending Votes: January 2027 membership vote will consider nonanoic acid, hydroxypropyl cellulose, chromium salts for laying hens, and nomenclature changes for direct fed microbials.
• Raw Pet Food: A new definition for High-Pressure Processing (HPP) is being developed to clarify its interaction with "raw" product definitions.

Market and Competitive Landscape:

• Regulatory Environment: AFCO members are tracking a shift in e-commerce distribution, which creates challenges for regulators in sampling and verifying compliance across diverse channels.
• International Collaboration: AFCO maintains membership with Canada and Costa Rica and collaborates via the International Cooperation for the Convergence of Technical Requirements for the Assessment of Feed Ingredients (ICCF) to align standards globally.
• State Adoption: Nine states have adopted Pet Food Label Modernization requirements, with 13 others actively working through state rulemaking processes.
• FDA Reorganization: The FDA's Center for Veterinary Medicine (CVM) has split its Office of Surveillance and Compliance into two specialized offices (Veterinary Product Surveillance and Office of Animal Foods) to improve efficiency, though no significant personnel changes were noted at the user level.

Risks and Challenges:

• FDA GRAS Rule: The proposed rule to transition from voluntary to mandatory GRAS notification creates a documentation and compliance burden; failure to notify could increase enforcement risks.
• Legislative Uncertainty: The Potential Endangered Species and Regulatory (PER) Act language, if passed, could preempt state authority over pet food labeling and marketing, potentially voiding state-specific model bill provisions.
• Research Gaps: Current data is insufficient to support establishing specific nutrient profiles for senior dogs.
• Resource Constraints: State regulators face challenges regarding funding turnover, staffing shortages, and the "burnout" associated with wearing multiple regulatory hats.
• Timeline Volatility: Government rulemaking processes, such as the FDA GRAS rule, may move slower than anticipated, creating uncertainty for industry planning.

Management Commentary and Tone:

• The tone is professional, informative, and collaborative, emphasizing the importance of harmonization between state and federal regulators.
• Austin Therrell (Executive Director of AFCO) expresses confidence in the organization's ability to guide the industry through regulatory shifts while acknowledging the complexity and speed of technological and market changes.
• Management highlights a proactive approach to transparency, citing the publication of new FDA policy manuals and the commitment to open dialogue with industry stakeholders.

Analyst Questions and Answers:

• Labeling Courses: AFCO offers workshops on medicated feed and pet food labeling, with on-demand materials and future workshops planned for 2027.
• Collagen Review: No current active process to define collagen as a primary ingredient; a 2025 panel discussion highlighted the complexity and need for a sponsor to drive data collection.
• FDA Staffing: FDA CVM is actively backfilling positions lost in 2025 and rebuilding to full staffing levels following reorganization.
• SRIS Speed: The SRIS process takes multiple steps (committee approval, board approval, membership vote) and results in publication within the subsequent Official Publication.
• International Alignment: AFCO is actively seeking international government regulator membership and participates in global feed regulator meetings (e.g., Feed Latina) to promote harmonization.
• GRAS Comments: AFCO intends to release its official comments on the proposed GRAS rule before the December 9th deadline to help industry stakeholders align their responses.

Other Key Points:

• AFCO Structure: AFCO is a 117-year-old nonprofit comprising all U.S. state regulators, federal agencies (FDA), and international members. It maintains the nutritional standards for dog/cat food and runs ISO-accredited proficiency testing.
• FDA Updates: FDA has introduced a second amendment opportunity for GRAS submissions, clearer disclosure requirements, and a new policy manual (1244.3425) to standardize review timelines.
• Facility Registration: Food facilities must renew registrations with FDA between October 1st and December 31st of even-numbered years.
• Upcoming Events: AFCO's 2027 mid-year meeting is scheduled for January in Orlando, Florida.
• Balchem Resources: The host, Balchem, is promoting upcoming "Real Science Lecture Series" webinars on dairy lifespans, methane emissions, and the pet food economic landscape.