Fonterra Co-operative Group has announced plans to establish a dairy farm in China through its Shijiazhuang SanLu Group, in which Fonterra holds a 43% stake.

The New Zealand-based company said there was increasing demand for high-quality milk in China, which it said was the fastest growing dairy market in the world.

Fonterra is presently in discussions with local government authorities in China about securing land for the farming operation, which will milk up to 3000 cows and commence production in October 2007.

Fonterra milk supply director Barry Harris said: "By developing a cow-to-consumer supply chain in China we will be able to create value for our joint business and improve returns to our respective shareholders. China's dairy industry is expanding rapidly and milk production is expected to increase from 22bn litres currently to 40bn litres in seven years' time.

"However, growth in dairy consumption in China is also very strong. This will mean that while we expect to continue to import milk products from New Zealand, to meet market demand in China we also need to be producing high quality locally produced milk."