The Government has agreed to work towards a dairy sector co-operation agreement with Sri Lanka following the fallout from the Fonterra contamination scare.
Last month Fonterra temporarily suspended its operations in Sri Lanka after a protest by a nationalist group outside one of its plants about claims traces of the agricultural chemical DCD had been identified in milk powder.
The courts there also banned Fonterra products from being sold or advertised for two weeks.
The Sri Lankan health ministry later said tests had found no evidence of DCD in Fonterra products.
Fonterra has since resumed its operations in Sri Lanka but tensions remain.
Foreign Affairs Minister Murray McCully, who made a one-day visit to Sri Lanka last Thursday, says he met with the Sri Lankan Economic Development Minister to discuss expanding cooperation in the dairy sector.
He says Sri Lanka is keen to substantially build its domestic capacity in dairy, but acknowledges the expertise Fonterra can bring to that.
Mr McCully says they've agreed to set out how both Governments can support Sri Lanka's dairy growth, but also create a more certain trading environment for Fonterra.
The agreement is expected to be signed by the end of the year.