Fonterra has signed an agreement on a new $42 million farm in northern China, its second such venture in the country.
The indoor farm in Hebei Province will milk about 3000 cows which will be imported from New Zealand and housed in free-stall barns.
The operation will be similar to Fonterra's first pilot farm established three years ago, which is now producing about 25 million litres of milk from more than 6000 cows.
The dairy co-operative says its chief executive, Andrew Ferrier, signed the agreement with Chinese officials in Beijing on Wednesday.
Fonterra says the investment is the next step in its strategy to expand milk production in China, which is also its biggest single export market.
Fonterra international farming general manager Peter Moore says the co-operativem is focusing on farming rather than processing for now, after losing its investment in the joint venture with San Lu, one of the dairy companies caught up in the melamine milk contamination scandal.
He says the company needs control of its raw ingredient to be successful businesses such as processing in China.
Fonterra is already looking at sites for a third dairy farm in northern China.