“Some of the numbers that are being put to us are like telephone numbers in terms of potential,” Norco chief executive Brett Kelly said. "The market we are targeting is the middle class. They’re pretty well educated, quite financially well off and very, very focused on quality of products." Norco hopes to increase fresh milk exports to China to 20 million litres a year in the next 12 months which would account for about 10 per cent of the co-operative’s total production. From there, things then become a little tricky. Norco sends its milk to China pre-packaged on commercial passenger aircraft. Once it hits 20 million litres it has to start filling entire planes with milk. “Our objective in the next 12 months is to build up slowly and very carefully,” Mr Kelly said. “In the long term we want to create a viable, sustainable market, that we can get a fair price for our milk.”

The Chinese shipments come four years after Coles started selling milk for $1 a litre, which Woolworths and Aldi quickly matched, igniting the supermarket price wars that led to strong discounting in a range of household staples. Agriculture Minister Barnaby Joyce has applauded Norco’s efforts and said it could trigger the end of $1 a litre milk in Australia because more farmers will sell their milk to export rather than domestic markets. Although Mr Kelly does not support the supermarket discounting, he said Norco had a good relationship with Coles. It recently signed a five-year supply contract with the supermarket chain which has allowed the co-operative to invest $6.4 million upgrading its factory at Labrador on the Gold Coast. It is not alone. Australia’s biggest dairy company Murray Goulburn struck a 10-year supply deal with Coles which as also allowed it to invest its processing operations. “When you sign a contract and you have a fair position in terms of rise and fall price mechanisms … the co-operative is in a position where we can go to our bank and we can actually invest in our sites for the future,” Mr Kelly said.

The fresh milk exports came after year-long negotiations between Norco's partner, export consultancy PGS, and Chinese officials. Until April this year, lengthy testing and quarantine rules made exporting fresh milk to China impossible. The milk needed to be tested in Australia before departure, which would take about seven days and tested again on arrival in China which would take another seven days, by which time the milk had begun to turn. “What we do now is we parallel test, so we send the milk over to China and we test it there at the same time we do the testing that’s required in Australia. What that does is that cuts it back, so from the farm to the supermarket shelf it’s around about 8 days," Mr Kelly said.

PGS owns the fresh milk "pipeline" and its managing director Peter Verry said the company was working with other milk processors to send products to China. But Mr Verry said while the milk appeared to be selling for a premium that was not completely the case, adding the profit margin was slightly higher than domestic sales.

He said it costs about $1 a litre to fly milk to China, then a 15 per cent tarriff is added as well as 17 per cent value-added tax (the equivalent of the GST). "Then there is a distributor, sub-distributor and the retail outlet," Mr Verry said. "The best outcome is it allows the industry to grow. There are opportunities with milk powder and infant formula but NSW doesn't have the processing plants yet."