CHINESE giant New Hope will invest up to $500 million in Australian dairy farms and processing plants as part of a deal with ASX-listed Freedom Foods in what could be the first of many deals fuelled by the historic China-Australia free-trade agreement.

On Tuesday, Freedom Foods and the Perich Group said they had signed a memorandum of understanding with New Hope, China's biggest private agricultural company.

"With increasing demand from markets in China and south-east Asia for high-quality, value-added product, Australia, through companies such as Freedom Foods and Perich Group, is well placed to play an important role in the development of this supply chain," Freedom Foods managing director Rory Macleod said.

To secure milk supply, New Hope has established an investment fund of up to $500 million to invest in dairy farms and dairy processing.

Freedom Foods said it has built on its supply arrangements with New Hope for UHT [long-life] milk and it is considering collaboration in other strategic branded dairy operations in Australia and overseas to take Freedom Foods products to China.

Perich Group, New Hope and other investors will contribute most of the equity for farm investment, which will commence in 2015.

News of the deal comes on the back of Monday's free-trade agreement with China that gave Australia unprecedented access to the Chinese market.

Dairy producers fared particularly well, with all tariffs (up to 20 per cent) on Australian dairy eliminated in four to 11 years, depending on the product.

"We couldn't wish for a better deal. The agreement will do for us what it did for New Zealand. New Zealand [dairy] trade with China exploded after they signed their deal [in 2008]," Murray Goulburn managing director Gary Helou said.

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FTA win for Freedom Foods