Fonterra Australia plans to spend A$165 million ($179.4m) in its current financial year on key sites in Victoria and Tasmania to increase capacity needed to process the extra 400 million litres of milk that now flows the co-operative's way.

The investment was first signalled by chief executive Theo Spierings when the co-op's annual result was released in November last year.

Fonterra's managing director for Australia, Rene Dedoncker, said Fonterra's Australian milk pool had grown by 400 million litres this season.

"And with this new investment we plan to grow our milk further which we expect will come through growth from our existing farmers who wish to grow, coupled with milk from new suppliers joining Fonterra," he said in a statement.

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Fonterra's increase in milk supply has largely come at the expense of its main competitor, Murray Goulburn, which has seen its supply shrink sharply after hitting financial difficulties last year. Saputo, one of Canada's largest dairy producers, last year agreed to buy Murray Goulburn for A$1.3 billion, including debt.

Fonterra, along with several others, had put in a proposal for Murray Goulburn, which had earlier reported a A$370.8m loss for 2016/17.

Dedoncker said Fonterra Australia's total milk intake was now 2 billion litres in Victoria and Tasmania.

Fonterra said about A$130m would be spent on to putting capacity to handle an extra 500m litres milk, and a further A$35m for a range of annual site improvements as part of its regular capital investment plan in Australia.

The expansion includes:

• A$125m expansion at Fonterra Australia's flagship Stanhope cheese facility in northern Victoria, doubling the size of the cheese plant.

• A$12m investment in Tasmania, which includes expansion to its Wynyard cheese plant and an increase in lactose processing capacity at Spreyton.

• A further A$7m expansion at the Darnum nutritionals plant in Gippsland - where Fonterra has a joint venture with China's Beingmate - as well as the installation of two robotic palletisers in Bayswater in eastern Victoria.

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• A$13.5m for projects at Cobden and another A$8.6 million at Dennington in western Victoria.

At present, Stanhope can produce 45,000 tonnes of product including cheddar, mozzarella, gouda, parmesan, pecorino, romano and ricotta.