FONTERRA is expanding into China with the blessing of the Chinese Government, which wants increased dairy consumption in its population.
The blessing means Fonterra has entered a joint venture with a 43pc stake in the Chinese dairy company San Lu.
Chinese Premier Wen Jiabao announced the decision in Wellington, New Zealand, where he met with NZ Prime Minister Helen Clark and cabinet members earlier this month.
Fonterra chief executive officer Andrew Ferrier said he was delighted the deal had been permitted. The company could now move to finalise the details around its planned investment.
Mr Ferrier said San Lu was an established Fonterra customer with an excellent growth record, an established sales and distribution network reaching more than 600 cities in China, and some of the China's most modern milk processing facilities.
"Developing a closer working relationship with San Lu is the logical next step for Fonterra's business in China," he said.
"It complements our existing importing and consumer businesses there by partnering us with a successful local company that has access to local fresh milk supplies."
Mr Ferrier said China's recent economic growth and expanding middle class offered huge opportunities for Fonterra.
"Dairy consumption has increased considerably in recent years, but it is still well below the average for the Asian region," he said.
"Fonterra has been a successful exporter of dairy ingredients to China for decades, but as local production increases to meet rapidly-growing local demand, becoming part of the local industry will give the company further opportunities to employ our expertise in all areas of the business from milk collection to consumer goods."
Mr Ferrier said a free-trade deal between NZ and China would bring further benefits to dairy industries in both countries, and Fonterra strongly supported the NZ Government's efforts to bring this about.
Fonterra recently entered a joint venture dairy alliance with Landmark in Australia.
WA exports 10-15pc of its milk to Asia and if production continues to increase in the state, more fresh milk could be on its way to the Asian region.
China is Fonterra's fourth-largest market and although daily consumption of milk is well below the average for western countries, its government would like to see every child in China drink a glass of milk a day.
As one of the world's fastest growing economies, China offers a huge market and enormous growth potential for the Fonterra dairy label.