Landcorp wants to squeeze more milk solids from the Crafar farms, if and when its Chinese partner Shanghai Pengxin takes ownership of the land.
Chief executive Chris Kelly told parliament's primary production committee the Crafar farms are producing about 4.3 million kilograms annually, and he wants to get that above five million over the next two or three years.
That would take production back to where it was under Crafar family ownership, but Mr Kelly said the cows are now in much better condition than then.
"The Crafars were farming pretty much at the edge," he said.
Landcorp will manage and develop the 16 Central North Island farms for Shanghai Pengxin, which got government approval for a second time last month after the first nod was overturned by a High Court appeal.
Mr Kelly said the deal would be similar to a 50/50 sharemilking joint venture through a yet-to-be-formed entity called Milk New Zealand Farming Limited.
The entity will have two directors each from Landcorp and Shanghai Pengxin, with an independent chairman, and will advise shareholders "independently about whether they hold shares, whether they don't hold shares, whether they buy farms, sell farms, what critical mass. All those sort of things," Mr Kelly said.
Shanghai Pengxin sees its biggest commercial opportunity where it can sell New Zealand-sourced product for almost five times more than local UHT milk in China, he said.
"They are prepared to pay a premium, in their view, for the farms back in New Zealand."
Landcorp hasn't decided on whether to sell its dividend rights from its Fonterra shares as part of the proposed Trading Among Farmers scheme, and wants to see the details of the new capital structure.
Shanghai Pengxin will hold the Fonterra shares of the Crafar farms and will ultimately decide whether to sell the dividend rights of the "dry shares" into the Fonterra Shareholders Fund."They haven't given an indication, because I don't think they know," Mr Kelly said.
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