The co-operative owned dairy said it intends to buy the 50 per cent that it does not already own in Australia's fourth-largest dairy company, Bonlac.
Fonterra said the move is supported by the board at Bonlac Supply Company (BSC), its joint venture partner, but still to be ratified by BSC shareholders.
"These changes underline our commitment to maintaining robust and sustainable businesses in Australia's dairy sector that are internationally competitive and which allow everyone in the production chain to make money - farmers, dairy companies and retailers," said Fonterra's chief executive Andrew Ferrier.
He said that Fonterra's move to gain 100 per cent of BFL would give BFL's 1,500 farmer suppliers more stability than they have today.
"We have made good progress and achieved what we set out to achieve, but BFL remains hampered by drought-affected milk supply and is not in a position to make further investments."
The chief executive claims by taking 100 per cent ownership of BFL, Fonterra can reduce the Australian dairy's cost, "establish a stronger balance sheet, make further investments in the business and create greater scale and efficiencies."
At the same time Fonterra said it will buy a milk-processing plant from Nestle on Victoria's south west coast.
As part of the agreement, Fonterra will take over the collection of milk from around 420 farmers in Victoria who currently sell their milk to Nestlé, and will manufacture a range of powdered milk products for Nestlé in Australia.