New Zealand's toddler sheep milk export industry posts a red letter growth spurt this month, with optimism so high it expects to outgrow a $50 million new Waikato processing plant within four years.
The two industry pacesetters, which have poured millions of dollars into genetics and farming systems development since 2017, Maui Milk and Landcorp's Spring Sheep Milk, report jumps in new Waikato farm supply this month and expect to nearly double supplier numbers next year.
Sheep dairying, like cow dairying, is seasonal. Milking starts in August and runs until about May. The fledgling sector is attracting big interest from cow dairy farmers in the Waikato - 850 people attended Spring Sheep's last open day - as a potentially lucrative and less environmental compliance onerous alternative.
Maui's supply farms jump this month from two to six, and up to six new farms are due to be taken on next year, according to co-founder and general manager Peter Gatley. The farms are all in the Waikato and are conversions from dairy or red meat operations.
Spring Sheep Milk starts the season with seven Waikato suppliers and will take on another five next year, chief executive Scottie Chapman says.
Chapman expects Spring to be a $200m-$700m business within nine years. The company is 50 per cent owned by SOE Landcorp, which trades under the brand Pamu, and 50 per cent by private investors including Chapman.
Food Waikato chief executive Stuart Gordon, who oversaw the building of a just-commissioned new spray dryer for sheep milk powder production at Waikato Innovation Park, told the Herald at this rate of supply growth, his customers will have to start looking for new processing sites in four years.
The new dryer, a joint venture between Spring Sheep, Australian-listed Clover Corporation, Asian-owned Dairy Nutraceuticals and Food Waikato, can produce 20 tonnes of milk powder a day.
It is expected to deliver $129m in dairy exports a year and complements an older, smaller dryer on the Hamilton business park site, which produces $45m of export product annually, Gordon says.
No more plants can be built on the park site because of resource consent limitations.
But the Maui and Spring bosses say outgrowing this site is the least of their concerns because in four or so years the sector will be big enough to approach the many cow dairy processors in the Waikato for use of their plants.
Spring is the biggest shareholder and customer of the new dryer.
Chapman says the global sheep industry is estimated to be worth NZ$12 billion at the farmgate and NZ$45b at retail.
A new industry report, funded by the Ministry for Primary Industries, says based on the projected growth in infant formula alone, there is potential to grow export sales of sheep milk products from $20m to $250m per year in the next five years.
Asia is the biggest consumer of sheep milk products. Sheep milk is naturally A2 protein and is recognised as a high-quality, digestible alternative for people with lactose intolerance and protein allergies.
Maui Milk graduated to the big league last year by securing a supply contract with global food giant Danone, which launched a premium sheep milk toddler formula using milk from Maui's two foundation farms on the western shores of Lake Taupō. It is the only supplier of sheep milk to Danone in New Zealand.
Danone has said it plans a full sheep milk formula range under the Nutricia brand.
Gatley said while his company started with the idea of selling under its own brand, it was now fully stretched just trying to meet Danone demand for milk. Sheep milk sold at a premium even to dairy goat milk, he said. The dairy goat industry is also concentrated in the Waikato, where most farmers supply successful exporter, the Dairy Goat Cooperative.
"We expect the only constraint on growth for the next few years will be the number of sheep we can breed," Gatley said.
Maui's supply farms so far are in north Waikato, Cambridge, Te Aroha, and Otorohanga.
Gatley said the interest in conversions to sheep milk farming was mainly from Waikato dairy cow farmers with farms too small to be profitable any longer, those with ageing infrastructure on small farms and under pressure from rising environmental compliance costs, and farmers with several farms who were looking to diversify.
Conversions were relatively inexpensive, quick and straightforward at $200,000 to $500,000 because the basic infrastructure was in place, plenty of sheep milking systems were on the market, and nitrogen discharge obligations and the general environmental compliance regime much more attractive.
Another attraction was that sheep milking was pasture-based. There was no need for barns and a lot of feeding equipment. Sheep didn't pug the land in winter like dairy cows.
However, dairy sheep required good feeding on high-quality pasture.
"The typical sheep farmer would need to recalibrate their thinking about how these sheep are fed. It's a relatively high-performance animal so the level of feeding on the traditional sheep farm is not comparable."
Gatley said a good dairy ewe could fetch $500-$800, which sounded a lot compared to a New Zealand non-dairy sheep, but with a dairy sheep producing 250 litres of milk a season worth $750, the value proposition was strong. Because New Zealand genetics had started from a near zero base, 50 years' genetic gain could be potentially achieved every generation.
"In the Waikato you could expect to run at least around 15 ewes to a hectare. At the moment you could expect around 250 litres a sheep over 220 days [of the season]. At $750 of milk per sheep, that is significantly higher earning per hectare.
"We don't see why we can't get 300 litres and more once we improve genetics and systems [per animal, per season].
"If you get past 300 litres [per sheep], that's close to $1000 milk income and that looks pretty exciting."
Maui paid $17/kg of milksolids. Sheep milk was 50 per cent higher in milk solids than dairy cow milk, he said.
Gatley said Maui had three people, including himself, totally focused on genetic improvement.
The company had invested "millions" in the business from buying and converting two farms for 2000 ewes and importing genetics and embryos, to progeny testing, performance monitoring equipment and reproductive technologies.
"It's been a massive investment but the dairy ewe is the engine room of this industry."
In five years he expected to have "dozens" of milk suppliers producing a conservative 300,000 litres of milk for Maui a season.
"The typical supplier will probably have about 1000 ewes and the typical farm will be 70 to 80 hectares."