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T Indolakto, a subsidiary of the world’s largest instant noodles maker, PT Indofood CBP Sukses Makmur Tbk, has allocated up to Rp 900 billion (US$99.9 million) for its capital expenditures this year to support the construction of its new dairy factory in East Java and maintain its operational activities, a company executive says.

Indolakto Vice CEO Irsan Yazid said on Friday that the spending would be sourced from its internal cash as well as from loans. He said that the factory, built with a total anticipated investment of US$130 million, was expected to raise its production capacity by 40 percent from 375,000 tons per year at present after commencing its operations in 2013.

The factory is designed to make condensed sweetened milk, ultra-high temperature milk and sterilized bottled milk.

“It will produce around 180 tons of milk on a daily basis,” he told reporters at a ceremony at the plant in Purwosari, Pasuruan, East Java.

Yazid added that the raw materials would be sourced both from local suppliers and imports, as local breeders could only fulfill 25 percent of total industry needs.

Construction of the facility, which stretches over an 11-hectare area, started last April and is scheduled to run over two phases, with the first phase to be completed in the last quarter of this year and the second phase in the second quarter of next year.

The facility is set to become Indolakto’s fifth factory, and is aimed to cope with surging demand for dairy products in local markets, adding to its four existing plants: one in Pasar Rebo, Jakarta; two in Cicurug, Sukabumi, West Java; and one in Pandaan, Pasuruan, East Java.

As of September last year, the firm’s sales of dairy products stood at Rp 2.7 trillion, making it the second largest player in the county, Yazid said. Indolakto aimed to increase its sales by 5 percent this year in line with industry growth, he said.

The Indonesian Food and Beverages Producers Association (Gapmmi) had earlier estimated that Indonesia’s overall food and beverage sales would surge by 10 percent to Rp 710 trillion this year.

According to Yazid, Indonesia’s consumption of dairy products, particularly milk, is still low and this will provide enormous room for demand growth in the future, in line with the country’s surging income per capita.

Annual per capita milk consumption in Indonesia, the world’s fourth most-populous country with about 240 million, is only 11 liters, lower in comparison with an average of 20 liters in other ASEAN countries.

The dairy industry has contributed around 20 percent to Indofood Sukses Makmur revenue from sales of consumer-branded products, which presently mostly depend on sales of noodles.

Indolakto is 68.6 percent owned by Indofood following its acquisition by Singapore-based Drayton Pte. Ltd. in December 2008. It produces a wide array of dairy products, including milk, butter, ice cream and yogurt, under brand names such as Indomilk, Cap Enaak, Tiga Sapi, Orchid Butter and Indoeskrim.

The Salim Group, which owns Indofood, previously held a stake in Indolakto before selling its shares in exchange for a government bailout following the late-1997 Asian financial crisis.