Although Galaktika will continue to operate the dairy, Valio will help to construct the premises in Gatchina, situated south of St Petersburg, scheduled for completion in late 2007, and provide the machinery and equipment released from its plants that closed in Finland.
Harry Salonaho, President and CEO of Valio said: "Valio is not a shareholder in the dairy and we are not starting up dairy operations in Russia. We do however need more and more fresh products for the growing Russian market, and we can have these made locally in the new dairy. Valio will continue to import products that have a longer shelf life such as processed cheese, cheese and butter from Finland just as before."
Russia's food production was recently forecast to grow across the board over the next couple of years thanks to better buying power and import regulations, according to a government report.
The Russian Ministry of Economic Development predicted domestic food production will have more than doubled by 2008, compared with levels in 2004.
Russia's food industry is already the country's biggest sector outside of heavy industry, including energy and steel.
Some of the fastest development is expected in the dairy industry, thanks to the government's predicted rise in raw milk stocks and both domestic and foreign investment in cheese.
The dairy company's Viola, Oltermanni and Valio butter brands are all well-known in Russia.
Turnover for the company's subsidiary ZAO Valio St. Petersburg was estimated at € 120 million in 2005, up nearly 35 per cent on the previous year.
Valio, founded in 1905, is one of the biggest Nordic dairy processors and has been a leader in innovation, being one of the first to develop its own probiotic bacterial strain with which to develop functional dairy products.
The company currently operates 15 production plants in Finland, two in Estonia and one in Belgium. And in 2004 the company's turnover was €1.6bn, with sales in Russia constituting about €90m. Its commodity trade with CIS countries makes up a quarter of its total export volume.
Fresh dairy products account for 40.3 per cent of the Group's net turnover, cheeses 28.4 per cent, butter and spreads 12.6 per cent, milk- and whey based powders 6.4 per cent, ice cream 3 per cent and other products 9.3 per cent