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Associated Press | November 16, 1999 | By ROSS SNEYD, Associated Press Writer

EAST WARREN, Vt. - Larry and Linda Faillace are excited about their plans to change the American sheep industry.

Since importing their first East Friesian sheep from Belgium three years ago, they've established a breeding stock of milk-producing animals and introduced a line of sheep-milk cheese.

But the couple's flocks have been locked up under quarantine amid government fears that a disease related to mad cow is lurking under the wool. The U.S. Department of Agriculture wants to buy the animals for slaughter to check for illness.

Behind all of this is BSE, or bovine spongiform encephalopathy, the scientific name for mad cow disease. The fatal brain ailment has affected some 180,000 head of British cattle and has been linked to a similar illness in humans, known as Creutzfeldt-Jakob disease. At least 43 people have died in Britain after they apparently ate contaminated beef.

Sheep are susceptible to scrapie, a disease thought to be caused by the infectious protein behind mad cow disease. Some scientists believe British cows contracted mad cow disease from feed containing meat from sheep with scrapie. Scientists say the Faillaces' sheep are not infected with scrapie but there's no way of knowing for certain whether the animals are infected with the sheep version of mad cow disease.

With European sheep milk already imported to the U.S. market, the Faillaces have refused the USDA offer. They say it's proof the government has gone mad, not their sheep.

"With these diseases, if you wait ... till you have conclusive proof before you take preventive action, you're too late," said Dr. Linda Detwiler, the agency's senior staff veterinarian. "And sometimes, you're a decade too late."

The Faillaces' enterprise began while they worked in British agriculture. Larry has a doctoral degree in animal physiology, and worked with scientists who would later head investigations into mad cow disease.

After settling in Vermont, the couple decided to breed and sell the East Friesians - then unknown outside Europe - because they produce 10 times the milk of typical American breeds.

Along the way, they met millionaire philanthropist Houghton Freeman, who was looking for a way to help struggling Vermont farmers diversify. By 1996, with a business plan and USDA approval, they shipped their first sheep.

The flocks produced beyond expectations, and the Faillaces and Freeman began breeding them to sell and export, once the USDA agreed. A thriving cheese business also was launched using milk from the sheep.

Then, almost two years after the importing began, the USDA raised concerns that the sheep had come from the region in Belgium where cows were infected with BSE.

More than a year later, their flocks - a total of 365 animals - remain under quarantine by state agriculture officials on behalf of the USDA. None of the sheep can be sold for breeding or meat, although cheese from their milk is still produced and sold.

"The only way we could make money this last year was from cheese," Linda Faillace said.

Federal food officials are now questioning whether the milk is appropriate for humans, while millions of pounds of sheep milk cheese continue to be imported from Europe.

For now, fearing the ruin of their breeding business, the Faillaces and Freeman are refusing to back down and sell their flocks. The USDA has said it would be willing to allow the sheep to be exported back to Belgium, and has offered help in establishing a new stock of milk-producing sheep.

"This isn't easy," Detwiler said. "It's definitely not our intent to put them out of business but to help them to restock with something that would be viable for Vermont agriculture, but not put livestock and human health at danger."