OP's sisters kid may well not have ARFID or any other sensory issue.
However they are too little to voice what they're experiencing in a useful way, and the OP has no idea if they do or do not.
Taking a cautious approach with the possibility a child may have sensory issues/ARFID around food will do no harm at all if the child is actually just going through a normal developmental phase.
So taking pressure off by ensuring safe foods are present, but also that they are seeing people eating a range of foods, helping prep food, can choose to try foods if they want to... if the kid is NT then the range of foods they will eat will increase again.
And if they are NOT, then you won't cause the kinds of mental harm that so many of us have experienced as children!
I really don't understand what is so outrageous about taking a thoughtful 'do no harm' approach, vs the common, pretty much opposite approach 'assume child is being fussy and trying to control the parent and force them via varying levels of aversive behaviour to eat what they're given'.
Here's a thought experiment for you though, if you're genuinely interested in what a child with ARFID may be feeling.
Think of the most disgusting item ever, might be a food, might not be - goats eyeballs - lump of dog shit - someone elses cold sick - 100 year old egg - now imagine being co-erced to eat it.
Thats how can feel to be faced with unsafe foods and made to eat it.