(Reuters) - Kraft Heinz Co KHC.O has agreed to sell its Canadian natural cheese business to Parmalat SpA PLT.MI in a C$1.62 billion ($1.23 billion) deal that will help Kraft trim its debt and extend the North American footprint of Parmalat owner Lactalis.

FILE PHOTO: The logo of Lactalis Group is seen on the headquarters of the French dairy group Lactalis in Laval, western France, January 12, 2018. REUTERS/Stephane Mahe/File Photo

The deal comes a month after the new United States-Mexico-Canada Agreement (USMCA) was signed, under which Canada partially opened its protected domestic market to the United States.

The cheese business being sold by Kraft, which includes brands like Cracker Barrel, P’tit Quebec and aMOOza, generated about C$560 million in net sales in 2017, Kraft and Parmalat said in statements on Tuesday.

The transaction followed a competitive bidding process, Parmalat said.

Under the deal, expected to close in the first half of 2019, Kraft will sell its production facility in Ingleside, Ontario and transfer 400 employees to Parmalat.

The U.S. food group will continue to own and market other cheese products, including Philadelphia, Cheez Whiz and Kraft Singles, which are processed in Quebec.

Kraft, which like other consumer goods firms has been struggling with rising costs for raw materials and transportation, expects to use proceeds from the deal to pay down debt, which amounted to nearly $31 billion as of Sept. 29.

RBC Capital Markets served as exclusive financial adviser to Kraft Heinz Canada, while Fasken Martineau DuMoulin LLP served as legal advisers.

Parmalat said the activity will reinforce its century-old Canadian business that already comprises 3,000 employees and 16 dairy processing plants, helping to secure jobs and farm revenue.

The revised North American trade deal has irked Canadian farmers who see a threat to the country’s supply management system, but the agreement may bring limited gains for U.S. producers.

Parmalat’s acquisition in Canada marks a further addition to the North American footprint of France’s Lactalis, the world’s largest dairy firm that controls nearly 90 percent of Parmalat.

The deal would reinforce its presence “in the strategic market for cheese with high added value in Canada,” Lactalis said in a separate statement on Wednesday.

Lactalis has in the past year struck deals to acquire U.S. organic yoghurt brand Stonyfield, previously owned by fellow French group Danone DANO.PA, and agreed to buy siggi's, a U.S.-based maker of Icelandic yoghurt.

In another overseas acquisition, Lactalis last month agreed to buy the infant formula business of Aspen Pharmacare APNJ.J, in a move to revive its baby milk after a health scandal in its home market.

A salmonella outbreak at its sole infant formula production site in northwest France last year caused dozens of babies to fall sick and led to a global product recall.

Natural cheeses can include unripened cheeses such as cottage cheese, soft cheese such as Camembert or hard cheeses such as Cheddar.

Processed cheese is made by pasteurizing, emulsifying, and blending natural cheese. Several varieties of natural cheeses may be mixed, and powdered milk, whey, cream or butter, and water may be added, according to the U.S. Environmental Protection Agency.

($1 = 1.3126 Canadian dollars)