Synlait Milk says it will enter the fresh milk market in early 2019 by partnering with Foodstuffs South Island and will invest about $125 million in a liquid dairy packaging plant.
The Dunsandel-based company will become Foodstuffs South Island's exclusive supplier of its private label fresh milk and cream under the supply agreement, it said in a statement.
Fresh milk and cream from Synlait will be packaged in Value and Pams branded products, which are available across New World, PAK'nSAVE, Four Square and On The Spot stores.
The investment "establishes a platform for Synlait to pursue a range of dairy-based products for domestic and export markets in the future," it said.
"Synlait's research and development centre in Palmerston North, which is a collaboration with Massey University and FoodPilot, will provide the technical new product development expertise needed to establish, validate and deliver these capabilities at Synlait."
The deal comes after Synlait said this year it would move into new categories and branded consumer goods, provided it didn't conflict with existing partnerships.
The new facility will have a minimum annual capacity of 110 million litres and be capable of producing pasteurised milk and cream for domestic use, extended shelf life dairy products, long-life milk and cream for export, ready-to-drink liquid infant formula and toddlers milks and other blended dairy-based beverage products, it said.
Analysts have said Synlait would seek to 'de-risk' investment in new facilities by securing a foundation customer.
Discussing the move into new markets on a conference call in September, chief executive John Penno Synlait saw "areas in new categories that could be Synlait branded".
Steve Anderson, CEO of Foodstuffs South Island, said that "in time, we are looking forward to collaborating with Synlait to create a range of new and innovative dairy-based products that our customers will enjoy."
Last month, Penno announced he will step down after 12 years leading the company.
Synlait shares rose 4.6 per cent to $6.99 and have soared 125 per cent this year.