New Zealand dairy firm Fonterra announced on Friday that it has sealed a deal that gave the company the go signal to but two dairy farms in China, where the dairy producer plans to establish a base of milk that meets NZ dairy standard.

The agreement would add up two farms in Yutian County to Fonterra's existing Tangshan Fonterra Farm in Hebei province, 180 kilometres east of Beijing, which was established in 2007 as the dairy cooperative's pilot project in China.

The deal also paved the way for the final stage of due diligence on two potential Fonterra dairy farm sites, according to the New Zealand dairy firm.

Fonterra China managing director Philip Turner said that the initial agreement was another step forward in series of critical issues that must be hurdled prior to the finalisation of a formal contract that would secure the company's initiatives of producing high quality milk profitability on its Chinese farms.

Mr Turner said that Fonterra has remained committed on its earlier stance that much of China's increasing demand for dairy products could be met by locally produced milk and the company's decision to acquire two new farms pointed to its commitment of "building a safe, secure and sustainable milk supply for our customers in China."

At present, Fonterra said that the Tangshan farm is maintaining a total of New Zealand 5800 cows from the initial 3000 it brought into China when the farm was started, adding that half of herd are milking and headed into their third lactation following a third calving.

Fonterra said that the Tangshan farm alone produced an estimated 25 million of litres of milk during the past financial year, which the company hopes to double by the time its additional farms reach production stage.