FALL AAFCO REGULATORY UPDATES - BALCHEM CORP

Explicit Guidance:

• No explicit financial guidance (revenue, earnings, margins, capex, etc.) provided for Balchem or AFCO, as the transcript focuses on regulatory updates rather than financial forecasting.

Business-Segment Outlook:

• 2027 Official Publication: The 2027 edition of the AFCA (AFCO) Official Publication is currently available for pre-order; it will include new definitions for approved ingredients like zinc L-selenomethionine complex, synthetic sodium alumina silicate, and others, effective upon publication.
• Pet Food Labeling: A six-year enforcement discretion period regarding updated feline calcium/phosphorus profiles is scheduled to run through 2030; however, this timeline may extend if the broader Pet Food Label Modernization policy is delayed, though AFCO members may decouple the two timelines if that occurs.
• State Adoption: Nine states have already adopted Pet Food Label Modernization changes; 13 additional states are actively working through their rulemaking processes.
• Ingredient Certification: AFCO is considering launching a voluntary ingredient certification program in 2027, allowing firms that pass audits to use the "AFCO seal" on labeling for verified compliance.
• Label Review Pilot: A voluntary pilot program for free label reviews (capped at 10–12 products per company, up to 300 total products) is being considered for early 2027, with a potential transition to a fee-based system post-pilot.
• Laboratory Certification: A new voluntary laboratory certification program is under consideration to offer a higher competency audit for laboratories currently in AFCO's proficiency testing program.

Market and Competitive Outlook:

• SRIS Process: The AFCO SRIS (Science Review of Innovative Substances) process is now active; the first two ingredients (serine endopeptidase enzyme and grass-derived alkali lignin) were approved by the committee in late 2026 and await a full membership vote in January 2027.
• Raw Pet Food & HPP: AFCO is forming a new work group in 2027 to redefine "raw" in the context of High-Pressure Processing (HPP), potentially creating an intermediate definition between "cooked" and "raw" due to cellular changes from HPP.
• International Harmonization: AFCO is expanding global engagement, with plans to maintain participation in International Feed Regulators Meetings and Feed Latina, and is revising bylaws to facilitate broader international government membership beyond North/Central/South America.

Macro / Industry Outlook:

• FDA GRAS Rule: A final FDA rule on the GRAS notification program is anticipated in 2027 (following a proposed final rule publication), potentially transforming the voluntary notification system into a mandatory one with a one-year transition for existing products.
• Legislative Watch: The "Innovative Feed Act" language (to update FDA review for non-nutritional additives) is included in the Senate Farm Bill version; its inclusion in a final 2027 Farm Bill remains uncertain during the lame-duck session. The "PER Act" language in HR 8646 is also under review, with AFCO opposing its broad preemption of state labeling authority.
• Animal Health Supplements: The National Animal Supplement Council (NASC) is preparing a new bill for 2027 to create a distinct legal category for animal health supplements, moving them out of "food" or "drug" classifications.
• Regulatory Challenges: The industry faces ongoing challenges regarding the speed of e-commerce market entry and state-level regulatory funding/staffing constraints, which may limit enforcement capabilities.

Strategic Initiatives:

• FDA Reorganization: The FDA's Center for Veterinary Medicine (CVM) has split its Office of Surveillance and Compliance into the "Office of Veterinary Product Surveillance and Compliance" and the "Office of Animal Foods" to improve focus on pre-market reviews and compliance.
• FDA Process Improvements: The FDA has released a new Policy and Procedures Manual (1244.3425) to provide transparent review timelines, implemented earlier internal review deadlines, and established a second amendment opportunity in the GRAS process to reduce delays.
• ICCF Collaboration: The FDA is advancing internal harmonization with the International Cooperation for the Convergence of Technical Requirements for the Assessment of Feed Ingredients (ICCF) to align US, EU, and Canadian standards.
• Workshops: AFCO plans to offer on-demand pet food labeling workshop materials and a live in-person workshop in January 2027 at its mid-year meeting in Orlando.

Risks and Headwinds to Outlook:

• PER Act Preemption: If the PER Act passes with its current broad preemption clause, it could void state-level labeling and marketing regulations, shifting enforcement burden to an understaffed FDA.
• Regulatory Delays: Government rulemaking timelines (e.g., FDA GRAS final rule) are unpredictable and could extend beyond 2027 due to the pace of public comment reviews.
• Implementation Gaps: The 2030 deadline for feline calcium/phosphorus compliance may shift if linked to a delayed Pet Food Label Modernization policy.
• Enforcement Risks: Under the proposed mandatory GRAS rule, failure to notify the FDA could increase the likelihood of enforcement actions or scrutiny for firms marketing self-affirmed GRAS ingredients.
• State Funding: State feed programs face potential staffing and funding shortages, hindering their ability to fully regulate the market and keep pace with rapid e-commerce growth.

Management Tone on the Future:

• Cautious Optimism: Management (AFCO) expresses excitement about new collaborative tools and certification programs but maintains a realistic tone regarding the "glacier-like" speed of government rulemaking.
• Proactive Stance: There is a strong emphasis on industry preparation, urging firms to identify self-affirmed GRAS ingredients and prepare for the upcoming docket comment period (closing December 9).
• Collaborative Spirit: The tone highlights a commitment to harmonization, international cooperation, and supporting industry technologists through volunteer engagement and educational resources.

Miscellaneous:

• Senior Dog Profiles: AFCO's work group determined there is currently insufficient published research to support a dedicated senior dog nutrient profile, though the topic remains under periodic review.
• Collagen: No active process is currently underway to define collagen as a primary ingredient in standard pet foods; a sponsor would be required to provide necessary data.
• Facility Registration: Food facilities must renew FDA registrations between October 1 and December 31 of even-numbered years.
• Upcoming Events: AFCO mid-year meeting in January 2027 in Orlando will include votes on new ingredients (nonanoic acid, calcium salts of isobutyric acid, etc.) and HPP definitions.