Friesland first announced the joint venture with Australian company Warrnambool Cheese and Butter Factory Holdings in February as part of a plan to help meet growing demand in the country for prebiotic ingredients, like Vivinal GOS in the global beverage and infant nutrition markets.
The new production facility in Australia will help bolster Friesland Foods Domo current aggregate output of 35,000 tonnes per year.
Prebiotic ingredients, or those that boost the growth of beneficial probiotic bacteria in the gut, are worth about €90 million in the European marketplace but are forecast to reach €179.7 million by 2010, according to Frost & Sullivan.
The joint venture, named Great Ocean Ingredients, will draw on Friesland Foods Domo's expertise in manufacturing value added whey and milk-based ingredients, and the raw materials from milk-processing firm Warrnambool.
Friesland Foods Domo and Warrnambool have said work on the new facility will start this September and be ready for 2009.
Warrnambool chairman Neil Kearney said: " The company's participation in the joint venture is ideally aligned with the value-adding aspect of our growth strategy.
"Great Ocean Ingredients will create a cutting edge, high value product for export."
Robert van Ballegooijen, Friesland Foods' management board member, said: "Friesland Foods Domo has found a long-term valuable partner in Warrnambool.
"This joint venture fits into Friesland Foods Domo's strategy to strengthen our position as a global player in the field of ingredients for value-added products.
It also enables us to ensure supply contingency towards our customers."
Friesland Foods Domo's whey and milk based ingredients are already supplied to food, nutrition and pharmaceutical industries throughout the world.
The company has five production facilities in the Netherlands, sales offices in Malaysia and the UK.
Warrnambool Cheese and Butter Factory is the fourth largest milk processor in Australia and the only dairy company listed on the Australian Stock Exchange.
The firm processes more than 800 million litres of milk annually.
It manufacturers cheese, butter, fresh milk, milk powder and whey protein concentrates for domestic and export markets including Asia, Europe and the US.