New Zealand’s Fonterra and Abbott, the US pharmaceuticals and health care giant are to develop a dairy farm hub in China.

The deal, subject to regulatory approval will see the two companies form a joint venture to invest a combined €220m ($300m).The hub will contain up to five dairy farms and more than 16,000 cows, which will produce up to 160m litres of milk annually. The herd will be made up with animals either imported, or sourced from Fonterra’s existing farm hubs.

The first farm is expected to be completed and producing milk in the first half of 2017 and the remaining farms will commence production in 2018. All dairy cows will have genetics traceable to New Zealand, Australia, USA or Europe.

“This would be Fonterra’s third farm hub in China and will complement our existing farming operations in Shanxi and Hebei Provinces that have been very successful,” said Fonterra chief executive, Theo Spierings.

“Farming hubs are a key part of our strategy to be a more integrated dairy business in Greater China, contribute to the growth and development of the local Chinese dairy industry and help meet local consumers’ needs for safe, nutritious dairy products.”

Dairy consumption in China has been rising steadily over the past 10 years and the continued development of safe, high-quality milk sources is essential to meeting this growing demand.

As the world’s largest global milk processor and dairy exporter, Fonterra is still trying to rebuild its reputation after a botulism false alarm resulted in a product recall and dented consumer confidence last year. Fonterra reported net profits of NZ$217m (€135m) for the six months to the end of January, which were down 53% when compared to the same period last year.

Abbott is a major player in China's infant formula and nutrition market.