The construction, which will be situated at the company's Edendale site in Southland, has been commissioned in preparation for an expected surge in milk production in the South Islands by 2012, said group chief executive officer Andrew Ferrier. "Growing the Cooperative's core business by sustainably increasing its milk supply and expanding its processing capacity is key if we are to capitalise on strong market demand for our products," he stated. "The new dryer will manufacture regular Ultra Heat Treatment (UHT) and instant whole milk powders, and will take the site's peak processing capacity to over 15 million litres per day." The plant has been modelled on the company's existing powder production operations at its Edendale and Clandeboye sites, and when operational at the end of next year it will be one of the largest of its kind in the world, the company claims. Fonterra said that the construction was a vital step in expanding dairy ingredient production to meet increased global demand from its customers. Besides the production of whole, skim and butter milk powders, the site will also have sufficient capacity to produce cheddar cheese for the Japanese, Middle East and Philippines markets, Fonterra said. The company will also produce whey cheese, casein, anhydrous milk fat and whey protein concentrate at the site. Although accepting that dairy prices have begun to soften compared top last year's record levels, the company said it remained optimistic for the future of the dairy industry. Ferrier said that dairy demand was still expected to grow at around 3 per cent a year on the back of sales in markets like China, Latin America and the Middle East. "This investment is a vote of confidence for Fonterra, and the New Zealand dairy industry," he said.