Sheep Milk New Zealand Conference 202031 March 2020

Opportunities for New Zealand sheep milk products: a study of 5 export markets

Presenters: Jan Hales & Shane Kells

Findings will be presented in two parts

• Part 1 (Jan Hales)• Project background.• Key findings on the global

market opportunity.• What this means for

developing New Zealand’s sheep milk industry.

• Part 2 (Shane Kells)• Implications for processing.• Implications for farming.

- Undertaken by the New Zealand Food Innovation Network.- Funding from the Provincial Growth Fund (PGF).- Started January 2019.- Focused on opportunities to grow the New Zealand sheep and goat

dairy industries and stimulate regional economies.- Concentrated on how to scale the sector to meet PGF goals.

Project ScopeEx

port

Mar

kets

ChinaUSAGermanySouth KoreaTaiwan

Proc

essi

ng

Current vs. future requirements.Creating value from milk.Manufacturing models.

Farm

Current vs. future requirements.Financial model.Environmental implications.

Cheese Yoghurt Butter UHT Milk Nutritional Powders Infant Formula

Key Points

The market for sheep milk products is small and undeveloped

High farm gate milk price expectation limits where we can compete

To win, we need to position New Zealand sheep milk products at the premium end of

the market

THE MARKET IS UNDEVELOPED

According to Julian Mellentin from New Nutrition Business, sheep and goat milks are fast growing, premium niches that are starting to challenge cow’s

milk ... in the West as well as Asia.

Kid’s Nutrition Report, 2019

Germany is the most developed market for Sheep Milk products

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

China USA South Korea Germany Taiwan

Tonn

es

Sheep Milk Products - Estimated Total Market Size

Cheese Yoghurt Butter UHT Milk Nutritional Powders Infant Formula

Values derived from data provided by Gira (2019) and MPI & Euromonitor (2020)

0 5,000 10,000 15,000 20,000 25,000

Cheese

Yoghurt

Butter

UHT Milk

Nutritional Powders

Infant Formula

Tonnes

Sheep Milk Imports – Estimated Market Size

China US South Korea Germany Taiwan

Values derived from data provided by Gira (2019) and MPI & Euromonitor (2020)

Cheese dominates the market

HIGH FARM GATE MILK PRICE EXPECTATIONS LIMIT WHERE WE CAN

COMPETE

Our sheep milk costs 2-3 times more than our competitors

• Average milk price NZ$2.75 per litre

• Sardinian milk price NZ$1.10 -$1.45 per litre1

This forces us into premium categories OR

the premium end of every category.

1Source: https://www.forbes.com/sites/annalisagirardi/2019/02/19/why-shepherds-are-pouring-milk-on-highways-in-the-italian-island-of-sardinia/

Yoghurt is a large, fast growing category in China - we would have to develop the premium end of the market to be profitable

Note: Calculations include manufacturing and supply chain costs; excludes R & D and market development costs.Derived from retail pricing provided by Gira (2019).

$5.50

$15.00

$20.00

$(3.90)

$3.56

$7.48

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

US$

/kg

or N

Z$/k

g

Drinking Yoghurt in China

USD$ Avg market price Approx. NZ margin

Current price of locally

made yoghurt from non-

bovine milk

NZ margin is the value of the product when is leaves New Zealand, minus manufacturing/transport/storage costs.

Infant Formula is an easier win

$89.51

$75.00 $76.70 $64.60

$99.01

$49.35

$27.67 $27.69 $25.95

$56.80

0.00

20.00

40.00

60.00

80.00

100.00

120.00

China USA South Korea Germany Taiwan

US$

/kg

or N

Z$/k

g

Sheep Infant Formula

USD$ avg market price Approx. NZ margin

Note: Calculations include manufacturing and supply chain costs; excludes R & D and market development costs.Retail prices from Gira research (2019).

TO WIN, WE NEED TO POSITION NEW ZEALAND SHEEP MILK AT THE

PREMIUM END OF THE MARKET

Who are our consumers? What do they value? What are the

willing to pay for?

Leverage our strengths/ address our weaknesses

Adapt and innovate without compromising our resources

Acknowledgements

Project Lead, CEO FoodSouthJohn Morgan

Steering GroupDaniel Phillips, Ministry for Primary IndustriesMackenzie Nicol, Ministry for Business Innovation and EmploymentNick Dobson, New Zealand Trade and EnterpriseStuart Gordon, Waikato Innovation ParkWarwick Tauwhare-George, Parininihi ki WaitotaraCraig Prichard, Massey UniversityPeter Hobman, Working Foods International

And everyone else who has been generous with their time and shared their expertise with us throughout the project.