Arla and Dairy Farmers of America agreed to start a joint venture to build a small dairy plant to produce cheddar cheese.
The joint venture will have a combined investment of $58m out of which Arla will contribute 20% or $11.6m.
The JV wants to explore opportunities to build premium-quality cheese in the cheddar category.
As part of the joint venture, there is an agreement to construct a dairy plant in the western part of New York State. This site will be near to 8 raw milk supplying farms.
Member farmer of DFA will supply about 70,000 tons of milk which meets the quality standards of Arla farm quality.
With more than one third of American cheese consumers buying cheddar cheese, there is a huge demand to start producing cheddar cheese made from high quality milk with no hormones, antibiotics and artificial ingredients.
This joint venture coincides with Arla's strategy for 2020 where the American market is one of six strategic growth regions.
Arla Foods CEO Peder Tuborgh said: "Together with Dairy Farmers of America and eight of their farmers, who will supply the raw milk, we will explore the opportunities in building premium quality standards into the cheddar category through the Arla brand."
"Adding cheddar to our US portfolio will make us more attractive to the retailers and help increase the sales of our European products made from owner milk."
Dairy Farmers of America president and CEO Rick Smith said: "We are pleased to be entering into this partnership with Arla."
"Arla and DFA share the same passion for providing the highest quality products to consumers and are committed to sourcing these products from dairy farmers who employ sustainable and transparent farm practices."
