WELLINGTON - New Zealand dairy giant Fonterra announced Friday that it is set to step up milk production in China after signing an investment agreement to develop two more large farms in Hebei province.

The two farms, to be developed in cooperation with Yutian county, would complete Fonterra's "hub" of five farms in Hebei and were the next step in its strategy to build a high quality, sustainable fresh local milk supply in China, said a statement from the company.

Located 120 km east of Beijing on a double site of 80 hectares, the farms would house around 3,350 milking cows each and collectively produce up to 65 million liters of milk a year once fully operational.

Fonterra Greater China and India president Kelvin Wickham said the investment was part of Fonterra's strategy to build an integrated local milk pool in China.

"The demand for dairy in China is expected to double by 2020 and much of this growth will be met from local production. We need to build a safe, sustainable local milk supply to feed this growth, " Wickham said in the statement.

"Today's announcement completes our first farming hub in Hebei province. Once fully operational, it is expected to produce around 150 million liters a year. We intend to follow this farming hub with several more throughout China, with the ultimate goal of producing up to 1 billion liters of high quality milk by 2020."

The double site would operate as two farms, with separate milking parlors and cow barns, but they would share common facilities such as workshops, feed mixing areas, effluent treatment and staff accommodation.

Fonterra China farms General Manager Nicola Morris said the herd would be made up of China-born cows bred on Fonterra's other farms and supplemented by around 4,300 cows shipped from New Zealand.

"We will be utilizing the great farming and animal husbandry talent that we have developed on our existing farms, to make up the 175-strong workforce we need to employ locally," Morris said in the statement.

"We have a very well established training and development program across our farming businesses in China, which is helping to feed the talent pool needed to manage these farms to Fonterra's high standards."

Development would begin in December and the farms were expected to open in October 2013.

Deputy Magistrate of Yutian county Zhang Yaowu welcomed the investment.

"Fonterra's first farming hub is helping to solidify Yutian county's position as a national agricultural demonstration zone," Zhang said in the statement.

In May, Fonterra announced it would develop unique products for the booming Chinese market at new innovation center in Shanghai, employing local staff trained in product formulation, product production, operating procedures and food safety systems.

Fonterra is the largest processor of milk in the world, producing more than 2 million tons of dairy ingredients and products every year, and employing more than 16,000 people.