FALL AAFCO REGULATORY UPDATES - BALCHEM CORP

Financial Performance:

• Not applicable; the transcript is a regulatory update presentation by the non-profit Association of American Feed Control Officials (AFCO), not a corporate earnings report for a public company. No revenue, earnings, or cash flow metrics are discussed.

Guidance and Future Outlook:

• 2027 Official Publication: New ingredient definitions and updates will be published in the 2027 edition of the AFCO Official Publication, currently available for pre-order.
• Enforcement Discretion: A six-year enforcement discretion period for revised feline calcium/phosphorus profiles (via Pet Food Label Modernization) is linked to the timeline ending in 2030, though this may be decoupled if label modernization is extended.
• Legislative Monitoring: Key focus areas for 2027 include the potential inclusion of the "Innovative Feed Act" language in the final Farm Bill, the status of the "PER Act" in appropriations bills, and the FDA's potential final rule on GRAS notifications.
• New Initiatives: AFCO is piloting a voluntary label review program and exploring new ingredient and laboratory certification programs for 2027.

Business Segments and Product Lines:

• Ingredient Approvals: Several new ingredients added for the 2027 edition, including zinc L-selenomethionine complex, synthetic sodium alumina silicate, xylooligosaccharides, lytic bacteriophage, and black soldier fly larva oil for aquaculture.
• SRIS Process: Two new ingredients (serine endopeptidase and grass-derived alkali lignin) successfully moved through the new SRIS (State Regulator Innovation System) process and are pending final membership votes in January 2027.
• Pet Food Profiles: New maximum phosphorus limits (5g/1000 kcal ME, with 1g from highly soluble phosphates) and a minimum Calcium:Phosphorus ratio of 1:1 established for cat food.
• Nomenclature: Updates include the definition of "natural" to include "other organisms" and "mine sources," and a new definition for High Pressure Processing (HPP) being considered to clarify its relationship with "raw" food.

Market and Competitive Landscape:

• Regulatory Harmonization: AFCO continues to promote uniformity across US state feed laws via model bills and collaborates internationally through ICCF (International Cooperation for the Convergence of Technical Requirements) with Canada and the EU.
• Global Expansion: AFCO is actively expanding international membership and participation (e.g., meetings in Brazil, Feed Latina) to address the global nature of the animal food industry.
• Market Challenges: Significant hurdles identified include the rapid speed of e-commerce distribution and the difficulty regulators face in monitoring compliance for products entering the market quickly.

Risks and Challenges:

• FDA GRAS Rule: FDA's proposed rule to transition the voluntary GRAS notification program to a mandatory system poses a compliance burden and potential enforcement risk for firms relying on self-affirmed GRAS status.
• Legislative Uncertainty: The "PER Act" language, if passed, could preempt state authority over labeling, causing significant disruption to current state-level enforcement frameworks.
• Resource Constraints: State regulators face challenges regarding staffing turnover, funding limitations, and burnout due to the expanding scope of their regulatory duties.
• Scientific Data Gaps: Insufficient published research currently prevents the establishment of a specific nutrient profile for senior dogs.

Management Commentary and Tone:

• Tone: The tone is professional, collaborative, and forward-looking, emphasizing the importance of adaptability and international cooperation.
• Confidence: Management expressed confidence in the FDA's recent internal improvements (transparency in timelines, collaboration, and data flexibility) but acknowledged the uncertainty of the legislative and rulemaking timelines.
• Stakeholder Engagement: There is a strong emphasis on industry involvement, calling for experts to join workgroups and for companies to submit comments on proposed rules.

Analyst Questions and Answers:

• Labeling Courses: AFCO offers workshops (e.g., medicated feed, upcoming pet food labeling) and plans to make on-demand resources available in 2027.
• Collagen Status: No active process to define collagen as a primary ingredient exists currently due to a lack of sponsorship and nuanced technical requirements.
• FDA Staffing: FDA-CVM is actively backfilling positions lost in 2025 to rebuild review capabilities.
• State vs. Federal Preemption: Questions highlighted concerns that the PER Act's preemption clauses could void state labeling laws, a scenario AFCO views as detrimental to industry and consumer oversight.
• Raw/HPP Definition: AFCO is forming a workgroup to define the interaction between High Pressure Processing and "raw" status to prevent contradictions.

Other Key Points:

• FDA CVM Reorganization: The FDA's Center for Veterinary Medicine (CVM) has restructured under "Simple Reform," splitting the Office of Surveillance and Compliance into two specialized offices (Veterinary Product Surveillance and Office of Animal Foods) and dissolving the Office of Applied Science to seek external partnerships.
• Facility Registration: Reminder that food facility biennial registration (Section 415) is open from October 1 to December 31 for even-numbered years.
• ICCF Collaboration: FDA has advanced harmonization by accepting ICCF documents for ingredient assessment, aligning US standards with international requirements.
• Upcoming Events: The 2027 AFCO Mid-Year Meeting is scheduled for January in Orlando, Florida.