Canterbury milk processor Synlait has taken over ownership of Talbot Forest Cheese.
In their first collaboration ever, the two farmer-owned co-ops plan to look into building a plant to make premium cheddar.
The joint cost will be US$58m of which Arla covers 20% (US$11.6m).
A third of the cheese bought by US consumers is cheddar. However, very few brands there make cheddar using the highest quality available milk -- without growth hormones or artificial ingredients.
"Together with Dairy Farmers of America and eight of their farmers, who will supply the raw milk, we will explore the opportunities for premium quality cheddar under the Arla brand," says Arla chief executive Peder Tuborgh.
"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 owners' milk."
DFA president Rick Smith says it is pleased to be linking with Arla.
"Arla and DFA share the same passion for providing the highest quality products... [sourced] from dairy farmers who employ sustainable and transparent farm practices."
The partners will build on a production site in western New York State where the eight farms supplying the raw milk are located. The farmers are members of DFA and will supply about 70,000t of raw milk annually, to quality standards similar to Arla's programme Arlagården.
The US market has a quota regime that imposes limits on Arla importing European cheddar.
Pinpointing the growth targets
The US market is one of six growth regions pinpointed in Arla's strategy 'Good Growth 2020'.
The goal is to become a top 10 player in the retail cheese market by growing its business beyond the deli section into the dairy aisle, where 92% of US cheese sales take place.
A newly launched big bet in the dairy aisle is Arla branded cream cheese, which has no artificial growth hormones, artificial ingredients or flavours.
"US consumers are increasingly looking for food products they can feel good about serving and consuming from a better-for-you standpoint," says head of Arla Foods USA, Don Stohrer Jr.
"This is exactly the position we have created for the Arla brand with its authenticity, transparency and great taste. It's an attractive position that doesn't now exist in the US dairy aisle or the cheddar segment. Our expectation is that the new cheddar products will create a halo effect for the cream cheese and other Arla branded products."
The joint venture will be owned 70% by DFA, which also holds the management role, 20% by Arla and 10% by the eight farmers who supply the milk. Thirty people are expected to be employed.
On-site construction will begin later this year, to start producing in the autumn 2017.