A woman uses her mobile phone in front of an advertisement for Fonterra in Jinan, East China's Shandong province, August 12, 2013. [Photo/IC]

Fonterra Co-operative Group Ltd and Abbott on Friday signed an agreement to develop a dairy farm hub in China.

The move is expected to leverage Fonterra's expertise in dairy nutrition and farming in China to facilitate Abbott's localized dairy production in the country.

If approved, Fonterra and Abbott will form a joint venture to invest a combined $300 million into the farm hub, which will contain up to five dairy farms and more than 16,000 dairy milking cattle in production, producing up to 160 million liters of milk annually.

The herd for this hub will comprise animals either imported, or sourced from Fonterra's existing farm hubs. All dairy cattle will have genetics traceable to New Zealand, Australia, United States or Europe.

Pending regulatory approval, 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.

"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 China, contribute to the growth and development of the local Chinese dairy industry and help meet local consumers' needs for safe, nutritious dairy products."