Synlait will soon be supplying milk to South Island supermarkets.

Synlait will build a new $125 million factory south of Christchurch to supply Foodstuffs South Island with private label fresh milk and cream from early 2019.

The company said it would establish a platform to pursue a range of dairy-based products for domestic and export markets in future.

Managing director John Penno​ said it was a further and significant step towards becoming more diversified.

Fresh milk and cream from Synlait will be packaged in Value and Pams branded products, which are available in New World, PAK 'n SAVE, Four Square and On The Spot stores.

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"The partnership allows the cooperative to provide high quality fresh milk and cream to our customers. The partnership allows us to give our customers surety around milk supply with an innovative New Zealand-based milk supplier," Foodstuffs South Island chief executive Steve Anderson said.

"In time, we are looking forward to collaborating with Synlait to create a range of new and innovative dairy-based products."

Synlait's research and development centre in Palmerston North, which is a collaboration with Massey University and FoodPilot, will provide the technical new development expertise.

The $125m investment will be for an advanced liquid dairy packaging facility at Dunsandel, in the Selwyn district.

"This will be one of the most sophisticated fresh milk and cream processing facilities in New Zealand," Penno said.

"By leveraging what we have learnt about milk quality and blending dairy products in our infant formula business, we will deliver a great facility at Dunsandel."

With a minimum annual capacity of 110 million litres, the facility will be capable of producing high-specification pasteurised milk and cream for domestic use, extended shelf life dairy products, long-life milk and cream for export, ready to drink liquid infant formula and toddlers' milks.

Penno said Synlait had proven experience from establishing and rapidly growing a successful infant formula business.

"We've demonstrated that we can introduce new capability, manufacture world-class product, build a profitable business around it and provide a long-term strategy for sustainable returns. This will be no different."