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Landcorp seeks to fatten sheep returns through wool deal, milk

Landcorp, New Zealand's largest corporate farmer, plans to increase returns from sheep, signing a three-year contract with NZ Merino to manage its entire wool clip and seeking board approval next month to build a new shed to trial milking some of the flock.

The state-owned enterprise indicated last July it was taking a serious look at milking sheep as a way of getting a third income, along with meat and wool, from its flock.

Chief executive Steve Carden said while milking sheep is common offshore, most of it is consumed domestically and there is no real international player. Landcorp has been investigating establishing a premium, niche sheep milk brand from the 370,000 ewes it farms.

"Fonterra has a lake of milk it has to take from its farms and then finds what to do with it and looks for options in improving what it produces," Carden said. "We want to start at the other end and not oversupply and drive prices down."

Landcorp has been doing market research on sheep milk demand, potential for products and where they would be exported to. It has also engaged Massey University's Riddet Institute, one of the national Centres of Research Excellence, to experiment making butter, yoghurt and ice-cream products. The institute has been assessing the taste characteristics and nutritional benefits from the sheep milk products which are about to go into in-market testing to gauge consumer reaction.

Chef Al Brown has also developed some high end restaurant dishes using sheep milk.

Landcorp has purchased 2,500 East Friesian sheep, which are the best sheep breeds in terms of milk yield per ewe, for one of its central North Island farms to pilot the move into sheep milk.

Carden said he will seek board approval in January for the estimated $2 million cost of building a milking shed, which would be retrofitted so it could be used for milking cows if Landcorp decides against proceeding with a sheep milking brand.

It will take seven months to get the farm operational and begin milking the ewes in spring, Carden said.

The SOE is not in the business of owning "stainless steel" and is talking to potential partners about milk processing and also with various iwi who are interested in working with Landcorp, he said.

The global sheep milk industry is estimated to be worth US$6.5 billion but Carden wouldn't be drawn on its potential value to New Zealand or Landcorp.

The major player in New Zealand is Southland-based Blue River Dairy which makes cheese and infant formula powder exported to China.

In a separate move, Landcorp has just signed a deal with NZ Merino, the marketing company dedicated to lifting merino wool out of the commodity basket through marketing and differentiation. NZM chief executive John Brakenridge has been on the Landcorp board since May 2011.

Carden said the three-year contract allows NZM to manage Landcorp's annual 2,700 tonne coarse wool clip (15,000 bales) rather than send it to auction. It's the largest wool clip in the country and coarse wool is currently used for hard-wearing fabrics such as carpets and tennis balls.

NZM has spent the past 16 years trying to boost sheep grower returns from merino wool by doing partnerships with various brands, including New Zealand's Icebreaker. Growers pay four percent of their revenue to the marketing body which aims to deliver higher prices to the farmgate in return.

NZM marketing manager Gretchen Foster said this was the first time it had been involved with coarse wool (above 30 microns) and contracts with other like-minded strong wool growers could follow if the Landcorp one proves successful.

"It's a very traditional market and I don't doubt there will be hurdles to jump. When setting up a new course for merino there were challenges," Foster said.

Initial focus will be on the interior textiles market and also new product development for strong wool such as felted products, she said.

Landcorp's Carden is hopeful of announcing its first deal with a wool brand partner in the New Year.

"It's about telling compelling stories, that's what good brands are based on," he said.