The company will produce conventional and certified organic butter at the site, located in the former Bonlac factory.

The refurbished facility began producing bottled milk last year for sale through the Aussie Farmers Direct home delivery network.

Butter production is expected to begin in June next year in a new $1.2 million facility on the same site.

The facility will produce conventional butter from cream taken off during bottled milk production.

"We've been selling that on, but this will allow us to add value here and produce a new product line," said Peter Skene, chief executive of Aussie Dairy Direct, the dairy division of Aussie Farmers Direct.

The product will sell under the Aussie Farmers Direct brand.

Organic butter will be produced in a joint venture with Organic Dairy Farmers of Australia, a farmer-owned co-operative of 22 producers.

Milk from some of these farms will be taken to the Camperdown site where the cream will be separated and made into organic butter, with the skim milk then being transported elsewhere for packaging. This will be sold under Organic Dairy Farmers of Australia's own banner as well as its second brand, True Organic.

Chief executive of Organic Dairy Farmers of Australia Bruce Symons said the venture was a big step forwards for the co-operative.

"Until now it has been virtually impossible to source commercial quantities of a locally produced organic butter, so this joint venture represents a big step forward for both us and our customers," he said.

The plant will produce one to two million packs of butter in its first year, with capacity to double that if required. It will add another three to five jobs to the 30 already created by the bottling plant.

shynes@fairfaxmedia.com.au