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How New Zealand’s Dairy Industry Innovates

The more you explore technology around the globe, the more you realize how much innovation is happening outside the Silicon Valley Vatican. Earlier this year, we wrote a piece on dairy technology in which we highlighted some startups that were considered to be “leading edge” by venture capital firms who invested in them. Shortly after our piece went out, we received an email from Wayne McNee, the chief executive of a publicly listed New Zealand company called Livestock Improvement Corporation (LIC). Much of the so-called innovation happening in dairy startups was old news to Wayne, as his company is at the forefront of dairy tech innovation having worked in the space for over 100 years. He invited us to check out his operation in Hamilton, New Zealand, so we did.

Livestock Improvement Corporation

Click for company websiteAs a 100-year-old company, LIC’s employees have been innovating from day one. Back in the olden days, the prettiest girls in the village would vie for jobs riding horses across New Zealand’s pasture lands collecting samples of milk from the local farm boys. This served as a mechanism for the girls to find the most suitable suitors for marriage. By visiting all the farms in the valley, the girls could then try and woo the boys who had the most hectares the best personalities. It’s all documented in pictures that grace the halls of LIC’s incredibly interesting headquarters in Hamilton where we sat down with some of their team including LIC’s Innovation & Transformation Advisor, Dion Cawood, to talk about the fascinating business they’ve built over the years which is all powered by technology and data.

How LIC innovates in the dairy industry

How LIC innovates in the dairy industry – Credit: LIC

The Circle of Life at LIC

Birth seems like a fitting place to start when describing a year in the life of LIC. It all starts with semen and an embryo. The semen comes from a prized bull that lives the life of Reilly near LIC headquarters. The pampered beasts spend their time eating delicious grass, being towed around in little tractor trailers, and having lots of sex – or so they think. We recently introduced you to the process of getting semen from a bull and we’ll skip just past that to when the “jump” makes its way into a room filled with people in white coats whose job it is to process the semen into one of two directions: fresh and frozen. Since fresh semen dies almost immediately, LIC developed a secret sauce that extends the life of fresh semen up to 3 days. This gives their technicians time enough to take the “sticks” out to the ranches and inseminate up to 80% of the national herd – about 5 million cows in just a few months’ time. LIC’s 2019 Genetics Catalog contains dozens of bulls you can choose from such as the ones seen below:

Bulls who are eager to impregnate your cows

Credit: LIC

Right about now you might be thinking that genetics would be the perfect technology to apply here, and that’s exactly what LIC does. A genetic profile of each bull and their offspring helps the company figure out the optimal way to breed cattle to produce the most output under various conditions. For farmers, the equation is quite simple. Grass goes in and dairy products come out. (A lactating cow consumes about 100 lbs or 43 kilos of grass per day.) LIC helps farmers optimize this equation using data, something that they’re able to capture from 93.5% of cattle herds in New Zealand. The platform which collects the data is known as MINDA LIVE.

Big Data from a Big Community

Farming communities often form co-operatives – or co-ops as they’re often called – which allows many small entities to collaborate such that they can all enjoy economies of scale. It’s the very essence of how LIC describes what they do – “a herd improvement and agri-technology cooperative that empowers farmers through the delivery of superior genetics and technology.” What this also means is that members of the co-op are shareholders in the operation so that everyone has some skin in the game. LIC counts around 11,000 farmers as members of the collective – about 93.5% of the national herd. By belonging to the co-op, farmers can take advantage of everyone’s data. Data is at the core of how they innovate.

Big Dairy Data

Big Dairy Data – Credit: LIC

About five years ago, LIC decided to move away from the animal and focus on the bigger farming picture – literally. At first, they tried using drones to survey their undulating grasslands but learned quickly – as our friends in Indonesia did – that operating drones is a logistical pain in the rear. Instead, they turned to satellite photos that are being processed by a company called FarmShots. It’s now a service offering called SPACE (Satellite Pasture and Cover Evaluation) which uses daily satellite imagery to accurately calculate how much feed there is – in other words, grass – something that farmers used to do manually. In New Zealand, the grass produced is unlike anywhere in the world due to the country’s favorable geography. This means nearly all the cows are outside munching on grass that’s consistently found year-round in great quantities. While venture capitalists spend billions of dollars figuring out how to turn plants into milk, cows have been doing it for 10,000 years.

Got Milk Samples?

So far, we’ve looked at how farmers get the cows to begin producing milk, and how we gather data about the disparate farming environments scattered throughout the country. But we’re missing one vital piece of data – information about the resulting product. There’s an entire division of LIC that’s focused on collecting milk samples from dairy farmers – typically taken twice a day – and then analyzing them to identify any number of things including:

  • high producers you can use for breeding
  • poor producers that need to be dried off or culled
  • animals with mastitis that need treatment, drying off or culling.

We toured their sampling facility as trucks arrived dropping off samples, and robotics technicians wandered taking notes as new automation technologies processed the samples quicker than ever. Around 75% of all cows in New Zealand have their milk analyzed in the modern facility which processes 11 million milk samples per year.

Milk testing at LIC

Credit: LIC

Each sample contains half a dozen data points, and all this “big dairy data” gets fed back into the closed-loop system so that the company can figure out how to make the operation even more efficient. It’s all made possible by a new automation system that uses a combination of laser light measurement, barcode scanning, mechanical rotation, and syringe liquid transfer.

The five custom-designed machines that were developed over the past three years to replace a 50-year-old manual process, represent the future of the industry. LIC invested $3.2 million in the project and expects it will result in recurring savings within two years and more importantly, benefits for their customers like increased accuracy. Eventually, the time lag will be removed and the milk tested right when it comes out of the cow at the point of milking. It’s that constant move towards greater efficiencies that makes LIC a world leader in dairy technology. It’s a trend you’ll see across New Zealand’s farming and horticulture industries, and it all stems from a lack of subsidies.

Competing in a Global Market

No conversation about dairy or beef can be considered complete without addressing the elephant in the room – the billions of dollars investors are committing to alternative dairy and plant-based meats. LIC is in an excellent position to weather any downturn because of two main reasons: New Zealand’s national brand and lack of farming subsidies.

Politico published an interesting article way back in 2002 titled “Farming without subsidies – a better way. Why New Zealand agriculture is a world leader,” which helps explain why New Zealand farming and horticulture is at the frontier of innovation, and it mainly has to do with a lack of subsidies. Says the piece:

Uniquely among developed countries, New Zealand farmers are almost totally exposed to world market forces. They receive no subsidies from government and have to compete with subsidised production from other producing countries.

When you’re forced to compete against regions of the world where farming is heavily subsidized – like the European Union and the United States – you need to create extremely efficient operations and a brand that sells itself. New Zealand’s “Silver Fern” country brand graces everything from All Blacks’ jerseys to jars of Manuka honey.

Examples of the “Silver Fern” brand – Credit: Amazon

It’s a recognized global brand that any New Zealand business can apply to use provided they’ve been exporting a product or service for a minimum of 12 months. It’s known the world round and is especially popular with the Chinese who consume 30% of New Zealand’s dairy exports. China is the second-largest dairy market after the United States which, unlike other parts of the world, is expected to grow meaningfully in the coming years. Other New Zealand startups like Quantec are also taking advantage of this trend.

While the rest of the countries with sizable dairy and beef exports look on with horror as people stop drinking milk and substitute beef patties with pea patties, LIC sees a market that’s growing in the face of these plant-based headwinds. LIC told us about one unnamed New Zealand butter producer selling into Texas and outselling butter from Texan cows. That’s not just the Silver Fern brand at work, it’s also the appeal of “grass fed.” ESG types eat that stuff right up. While the global industry may be shrinking, LIC sees an opportunity to capture market share. Going into a downturn being the most efficient at what you do is how great companies are made in not so great times.

Conclusion

It would be hard to find somewhere else in the world where such a comprehensive herd management dataset is being collected in such a closed-loop system. Mr. Dion says this is why LIC is the perfect place for startups to come and test their innovations. We spoke with a number of agtech startups that counted LIC as an investor, and they’re all part of a tightly knit community where most founders know each other.

A collaborative ecosystem helps accelerate innovation, and New Zealand’s national herd is producing more milk now than ever before. Being the small country of 4.5 million people that it is, the right people you need to speak with are never very far away. If you’re an agtech investor whose historically been investing in places like San Mateo, you’re missing out on some serious innovation that’s presently on sale at half the valuations you’ve become accustomed to.

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