New Zealand's dairy industry giant Fonterra has signed an agreement on a new 42 million NZ dollars (US$32 million) farm in northern China, its second such venture in the country.

The indoor farm in Hebei Province will milk about 3000 cows which will be imported from New Zealand and housed in free-stall barns, Radio New Zealand reported on Thursday.

The operation will be similar to Fonterra's first pilot farm established three years ago, which is now producing about 25 million liters of milk from more than 6000 cows.

The dairy co-operative said its chief executive, Andrew Ferrier, signed the agreement with Chinese officials in Beijing on Wednesday.

Fonterra said the investment is the next step in its strategy to expand milk production in China, which is also its biggest single export market.

Fonterra international farming general manager Peter Moore said the company needs control of its raw ingredient to be successful businesses such as processing in China.

Fonterra is already looking at sites for a third dairy farm in northern China.