Waikato Innovation Park’s secret weapon

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Sheep milk could be a $500 million added-value industry for New Zealand in 15 years, says the emerging sector’s Waikato processing pioneer.

But the prediction comes with a warning.

“It’d be wrong for farmers looking for income diversity to jump into sheep milk for at least another three years,” says Waikato Innovation Park and FoodWaikato chief executive Stuart Gordon, responsible for New Zealand’s first and only independent product development spray dryer at the park’s Ruakura site.

The dryer, flagship of the park’s spinoff FoodWaikato brand and capable of developing new products from concept to commercialisation, last year produced $53 million of added-value export products for the sheep and goat dairy sectors.

The achievement was underpinned by sheep milk producers, notably Taupo’s Maui Milk, Blue River Dairy in Invercargill and Landcorp’s central North Island Spring Sheep Dairy partnership.

The dryer was used by highly successful exporter Dairy Goat Cooperative while it built markets and supply before having to fund expansion of its Hamilton processing site with a second dryer.

Mr Gordon says the cooperative’s strategy of accepting only enough goat milk to match market demand is a lesson for the new sheep milk industry.

“We are getting constant inquiries from farming groups who’ve experienced the dairy price downturn and realise they are highly exposed as a business. I see what I’d call big family groups looking for diversification. They’re saying maybe we could convert one of our farms to dairy goats?

“But it’s hard to get into the co-op. And it’s a bit too early for sheep milk (conversions). We are saying hold on, don’t go in and produce a whole lot of new things when there are not yet markets for them. Come back in three years time when markets have started to grow.

“The vision is that in 15 years this is a half a billion dollar industry, all of it value-added. We should be trying to do what the dairy goat co-op has done – not trying to turn it into a commodity and pump it all out in powders but just take milk that’s needed, and turn it into New Zealand branded product.

“None of our products sell for less than $20,000 a tonne compared with up to $4000 for whole milk powder.”

Mr Gordon says the markets will be established by the same sheep milk producers who are using the FoodWaikato dryer.

The 7.5 tonne dryer, which employs 20 people full-time and can process 65,000 litres of milk a day, was the idea of neighbour AgResearch, and the park picked it up and ran with it. It cost $17 million to build.

Stuart Gordon, chief executive Waikato Innovation Park.

Mr Gordon says the asset is today valued at $25 million but has generated a further $135 million of investment by new and growing businesses, including the New Image colostrum and infant formula export company and sheep milk ventures. The dryer can also process nutritional powders. FoodWaikato once worked with the avocado industry to develop a product for the food service industry by drying pulp left after oil extraction.

Operational since 2012, the dryer plant was built in two parts with government funding of nearly $7 million and the rest financed by the innovation park, which is 100 percent owned by the Hamilton City Council.

The dryer itself is 70 percent owned by the park and 30 percent by government agency Callaghan Innovation. FoodWaikato is part of the New Zealand Food Innovation Network while the innovation park is Callaghan and NZ Trade and Enterprise’s representative in the Waikato region.

The dryer is turning a small profit and is fully self-funding, Mr Gordon says.

While the focus on infant formula powder production has imposed strict standards which limit the dryer’s scope to process pure fruit and vegetable powders, he sees plenty more business ahead for FoodWaikato.
“We think there are real opportunities in other regions like Hawkes Bay and the Bay of Plenty to develop other food sources to process.

“There’s a real gap in the market for developing new products. It’s high risk. We are contract manufacturers in a space where private enterprise doesn’t want to be. New companies without financial backing are highly exposed. We have our own experience of two companies which worked here going bust and didn’t pay their bills to us.”

Mr Gordon says for the Dairy Goat Cooperative, being able to use the park’s open access dryer while implementing its export strategy “changes the economics quite dramatically.” The co-op was the dryer’s first customer.

FoodWaikato’s primary job is to support the growth and development of the New Zealand food and beverage industries by providing facilities and the expertise to develop new products and processes from idea to commercialisation, he says.

It’s not necessary to be a park tenant to access the service, which offers free support, connections and access to funding.

Meanwhile, the innovation park, whose tenants last year collectively turned over $427 million, continues to seek outside investors to back a major expansion plan.

A master plan to expand the park’s four buildings to 16 needs money the city council doesn’t have so it resolved to allow outside investment. Mr Gordon says the investor drive is continuing, but declined to give details.

The current buildings occupy about 3ha of the 12ha park site, where more than 560 people go to work each day. More than 65 percent of the park’s tenants are actively exporting and 39 percent of companies are working together according to a park survey last year.

Mr Gordon says the park’s assets – excluding the dryer plant – are valued at $20 million.

“We think it could be $160 million if we raise the money do the master plan.

“We’ve produced a plan to develop something that creates collaboration and a great place to work. It can be built in stages around innovation and food, a properly-designed innovation centre that could be a driver of economic wealth for this region.“

The innovation park has hubs in Paeroa, Tokoroa, Raglan and Tuakau, where it works with local economic development agencies.

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Andrea Fox is a business journalist, a former Waikato Times business editor, Fairfax Business Bureau journalist and author. Andrea.fox@xtra.co.nz

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