FALL AAFCO REGULATORY UPDATES - BALCHEM CORP

Explicit Guidance:

• None provided regarding financial metrics (revenue, earnings, margins, capex, etc.) as the transcript is a regulatory update, not a financial earnings call.

Business-Segment Outlook:

• 2027 Official Publication: New ingredients approved via FDA Food Additive Petitions and GRAS notices will be listed in the 2027 edition of the AFCO Official Publication, including zinc L-selenomethionine complex for broilers, synthetic sodium alumina silicate for dairy cattle, and various new definitions for pet food ingredients (e.g., pomegranate pomace, black soldier fly larva).
• Cat Food Profiles: New maximum phosphorus limits (5g/1000 kcal) and minimum calcium-to-phosphorus ratios (1:1) for cat food were established; enforcement discretion for non-compliant products is linked to the Pet Food Label Modernization timeline, potentially extending to 2030.
• Labeling Modernization: Implementation of new pet food label requirements (nutrition fax box, intended use statement, carb/fiber disclosure) is ongoing; 9 states have adopted changes, 13 are in the rulemaking process, with expectations for widespread market adoption in 2027.
• Raw/HPP Definition: A new definition for High Pressure Processing (HPP) is being finalized for the January 2027 membership vote, with a planned workgroup to establish how HPP interacts with "raw" definitions for pet food.

Market and Competitive Outlook:

• Regulatory Enforcement: FDA is moving toward a mandatory GRAS notification system; failure to notify increases enforcement risk. The industry must self-assess ingredients relying on self-affirmed GRAS status ahead of potential finalization.
• State vs. Federal: Continued tension regarding preemption; if the PER Act passes, it could preempt state labeling/marketing authority, shifting review burden to the understaffed FDA.
• E-commerce Challenges: Regulators anticipate significant difficulty in monitoring and sampling products sold via e-commerce channels due to rapid market entry and distribution shifts.
• Ingredient Certification: AFCO is considering a voluntary ingredient certification program in 2027 (potential pilot) allowing firms to use an "AFCO Seal" for ingredients meeting safety and definition standards.

Macro / Industry Outlook:

• Legislative (2027 Focus):
  • Innovative Feed Act: Language advancing in the Senate Farm Bill 2.0 to update FDA review processes for technical feed additives; House version currently lacks this language.
  • PER Act: Included in House Appropriations Bill HR 8646; potential passage in 2027 would broaden federal preemption over state labeling laws.
  • Animal Health Supplement Bill: A new bill is expected to be introduced in the 2027 Congressional session to create a distinct legal category for animal health supplements (currently classified as drugs or foods).
• FDA Reorganization: CVM split surveillance/compliance into two new offices (Office of Veterinary Product Surveillance and Compliance; Office of Animal Foods) to improve specialization and efficiency.
• International Harmonization: Expansion of collaboration with 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.
• Facility Registration: Biennial FDA food facility registration is open for even-numbered years (current cycle); non-compliance forces a wait until the next cycle.

Strategic Initiatives:

• AFCO Pilot Programs (2027):
  • Label Review Program: Proposal to launch a 2027 pilot offering free label reviews for up to 300 products (capped at 10-12 per company), transitioning to a fee-based system thereafter.
  • Laboratory Certification: Development of a voluntary audit scheme for laboratories to demonstrate advanced competency beyond standard proficiency testing.
• Timeline: New SRIS ingredients (Serine endopeptidase, grass-derived alkali lignin) scheduled for membership vote in January 2027.
• Education: Launch of on-demand pet food labeling workshop materials and in-person workshops planned for the 2027 Annual Meeting in Orlando.

Risks and Headwinds to Outlook:

• Regulatory Delays: FDA final rule timelines for the proposed GRAS rule are uncertain; while a 2027 finalization is possible, the "glacier speed" of government processes could extend this beyond 2027.
• State Funding/Staffing: State feed programs face challenges with funding, turnover, and burnout, limiting their capacity to enforce regulations effectively.
• Industry Fragmentation: Inconsistent state recognition of independent GRAS conclusions creates market friction; the mandatory GRAS notification rule aims to address this but introduces a compliance burden.
• Legislative Uncertainty: Potential negative impacts if the PER Act passes in its current form, specifically regarding the loss of state-level labeling enforcement and potential bottlenecks at the FDA.
• Data Gaps: Lack of sufficient published research currently prevents the establishment of a specific "senior" dog nutrient profile.

Management Tone on the Future:

• Cautious Optimism: Management expresses excitement about harmonization efforts, potential industry support services (label review, certification), and FDA's improved transparency (new policy manuals, fixed timelines).
• Collaborative Stance: Emphasis on working with state regulators, federal agencies, and international bodies (Canada, EU) to adapt to rapid technological changes and global market dynamics.
• Adaptability: Acknowledgment of the challenge posed by the speed of e-commerce and product innovation, with a commitment to updating model regulations and definitions (e.g., raw, HPP) to keep pace.

Miscellaneous:

• AFCO Events: 2027 Mid-Year Meeting scheduled for January in Orlando, FL.
• Resources: Online access to the 2027 AFCO Official Publication (pre-order available), Pet Food Labeling Guide, and virtual assistant tools.
• GRAS Rule Comments: AFCO plans to release its draft position and comments regarding the FDA's proposed GRAS rule prior to the December 9th deadline.