Yoghurt and ice cream products made from sheep milk have been developed by the nation's largest farmer Landcorp - with plans to double its number of ewes for milking.
While Kiwis prefer their milk to come from cows, Landcorp sees a potentially lucrative market in Asian countries including South Korea, Taiwan and Japan.
The state-owned enterprise has purchased 3000 high-lactating East Friesian ewes and is likely to import breeding animals from Israel to at least double its potential sheep milk production.
It has told a Parliamentary select committee that sheep milk was an "exciting" niche product and more environmentally sustainable because it uses less water and creates less run-off than cow dairying.
Sheep milk is higher in total solids than cow or goat milk, and contains more minerals and some vitamins.
Chief executive Steven Carden told the Herald that the company had been working towards sheep milk production for over a year.
"There is a lot of sheep milk produced globally, but it is all largely consumed as cheese or fresh milk in the Middle East, Southern Europe and in China.
"And, given the nutritional profile of sheep milk versus other dairy alternatives, we think there is some quite unique opportunities to develop a range of products in the high-nutrition, high-end market."
Landcorp was working with Massey University's Riddet Institute to better understand the nutritional composition of sheep milk and how it might be used in products.
"They developed a range of yoghurt, icecreams for us to test. And we will be at that stage fairly soon of going in-market to talk to customers about what they're after and what we could deliver."
Likely markets are South Korea, Taiwan and possibly Japan, with possible products including nutritional formulas, probiotic yoghurt, an ice-cream range and high-end butter products.
If products are produced it would be by Landcorp in partnership with another company.
"Unlike most other things that get produced on the farm, we don't want to lose control of it once it leaves the farm gate, we actually want to stay involved," Mr Carden said.
The 3000 sheep that could be milked are being kept on a farm near Taupo.
Landcorp owns or manages 137 dairy, beef, sheep and deer farms.
It will import rams or ewes and possibly cross them with local sheep genetics to increase possible sheep milk production.
"There are countries that have been in sheep milk for hundreds if not thousands of years and have some very highly developed breeds that we'd be quite keen to get our hands on if possible," Mr Carden said.
New Zealand's sheep flock dropped to 29.8 million in the year to June 30, 2014, continuing a trend that started in 1982, when the sheep population peaked at 70.3 million.
Mr Carden said its investigation of sheep milk was unlikely to alter those numbers by much, as it was "very niche".
The largest New Zealand sheep milking operation is Blue River Dairy in Southland.
Landcorp believes competition from the private company would be minimal as Blue River's focus was on supplying formula to China.
• Landcorp, a state-owned enterprise, is looking to expand its potential to produce sheep milk.
• Has developed yoghurt and ice-cream products with the help of Massey University, and could eventually sell them in overseas markets such as South Korea.
• Sheep milk is higher in total solids than cow or goat milk, and contains more minerals and some vitamins.