It will also help the company extend its existing product line to address the changing lifestyles and consumer trends.
Fonterra CEO Theo Spierings said that developing innovative products is critical to the integrated milk business being built in China.
"China is a significant priority in Fonterra's global strategy and our Innovation Centre will help us develop unique products and formats that suit the needs of the local population," Spierings added.
According to the co-operative, Shanghai Innovation Centre will enable it to work closely with major customers and the foodservice industry.
Fonterra plans to hire local staff for the centre, who will be trained in product production, operating procedures, product formulation and food safety systems.
The opening of the new center comes after the Fonterra's recent announcement to invest NZ$100m ($82.21m) to build two new large-scale dairy farms in Hebei province, China, as a part of its plan to produce up to 1 billion litres of milk every year by 2020 in the country.
Earlier this month, the co-operative noted that it has expanded its senior management team and formed new business divisions to drive growth in emerging markets of China, India and Latin America .
According to the co-operative, milk consumption in China is expected to double by 2020 to 70 billion litres.
Fonterra entered into farming in China after its partnership with state-owned Sanlu fell apart in 2008, after the latter was implicated in a baby formula scandal.
