Fonterra has started work on a new milk powder plant at Pahiatua, to expand its milk processing capacity in the southern North Island.
It was forced to dump some low value by-products such as buttermilk earlier in the season because its North Island processing plants couldn't cope with the milk supply during the peak flow.
Chairman John Wilson says the $235 million powder plant will help deal with the increased milk production which at a national level, has been growing at about 3% a year.
He says there has been ongoing milk production growth which has challenged Fonterra's processing capacity in the North Island over the last three or four months.
Mr Wilson says the dryer will meet the demand for processing capacity as well as meeting a demand for milk powder.
He says the dryer has been planned for some time but it's now been confirmed and it will process about 2.4 million litres of milk a day.
Mr Wilson says it won't be operating this spring, but it will be spring 2015.
The new plant will create 45 full-time jobs for the community.
Milk powders, which make up 70% of Fonterra's total production, are continuing to sell at record high prices.
Fonterra is investing $235 million in the new plant and operations director Robert Spurway says demand for whole milk powder is increasing, particularly in China.
He says the extra capacity will the company's ability to process all the milk and allow Fonterra to meet the growing demand for whole milk powder so it can optimize returns to New Zealand farmers.
Earthworks are underway and construction of the drier will start this month.
The new Pahiatua drier will use the latest energy-efficient processing technology and will be the first in the country to reuse its own condensate.
The wastewater it creates will also be treated and used for irrigation.