Players in the burgeoning sheep milk business are investing $50 million in a new plant in Hamilton in preparation for an expected doubling of the industry within three years.

Four companies have formed new company Melody Dairies to jointly finance and build a second spray dryer at the Waikato Innovation Park, with building to start by the end of the year.

The plant is expected to deliver $129 million in export returns a year, said Waikato Innovation Park chief executive Stuart Gordon.

The investors are Nu-Mega Ingredients, owned by Australian company ASX-listed Clover Corporation (35 per cent), Landcorp Farming (35 per cent), Dairy Nutraceuticals (20 per cent) and Food Waikato (10 per cent).

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Clover Corporation chief executive Peter Davey said the investment will help his company meet fast-growing demand for its infant formula and functional food markets.

For Landcorp, the investment helps implement its Pamu Farms of New Zealand brand strategy, particularly its joint venture with the Spring Sheep Milk company.

Spring Sheep Milk is a boutique nutrition company which exports high-value branded food products made from sheep milk.

Pamu chief executive Steven Carden said for five years the SOE had been pursuing a strategic approach to future-proof itself by diversifying earnings potential and mitigate "the commodity cycle that holds the company hostage to some extent".

The investment was also positive for New Zealand's growing and award-winning sheep milk industry, Carden said
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"The facility investment will provide an additional option for drying the milk from our Spring Sheep joint venture, at a time where capacity for such specialist facilities is severely stretched.

"We will also be able to access our share of capacity in the dryer for processing other specialist milks, such as our pure organic milk powder, which we are about to start selling in China."

Carden said the investment was a positive step for the entire New Zealand premium milk sector.

"New Zealand has plenty of big dryers for commodity milk. What our country has lacked has been smaller, speciality dryers that can manufacture small scale, novelty milks."

New Zealand-based Dairy Nutraceuticals, established in 2016, had recently built a blending and packing plant in Auckland, said Gordon.

Food Waikato's spray dryer at the Waikato Innovation Park opened in 2012. The open access development plant produced $51m in export returns this year.

Gordon estimates nearly $15m of sheep milk exports were processed through the existing dryer last season.

"This would make up most sheep milk exports in that year," he said.

Clover Corporation had been a customer since 2014. Sheep milk from the Maui, Spring Sheep and Blue River sheep milk companies had also been processed through the dryer.

The dryer is running at capacity, operating for 300 days this year. It would continue to be available to companies developing new businesses and products.

The commercial and export appeal of sheep milk products is being driven by evidence of the emerging industry's lower environmental impact than bovine dairying and that sheep milk is more easily digested than cow milk, Gordon said.

It also tasted good, he said.

The new dryer will be designed and built by Waikato Innovation Park tenant Tetra Pak and would be operating by December next year.

It is expected to create up to 35 jobs.