The brewer is entering into a joint venture with Herefordshire-based company the Q-Group to build the mill which will have the capacity to produce 1 million hectolitres of cider.
In a statement, S&N said building on an external site rather than extending the existing one in Hereford would avoid capital expenditure while still allowing the company to meet growing demand for its cider brands.
Chief executive John Dunsmore said cider was continuing to grow with brand volume up nearly 15 per cent and share of the market increasing to 48.3 per cent.
The announcement came as part of S&N's Q3 2007 trading update, in which the brewer reiterated that "unprecedented" poor weather this summer had hit beer sales.
Dunsmore said: "The value driven asset management approach to managing the business has proved its worth in the UK where S&N is the leader in one of the most competitive and valuable beer markets in the world."
The group also unveiled several other proposals for the UK market, designed to convince shareholders that a proposed £7.3bn takeover bid by Carlsberg and Heineken was under the mark.
S&N valued itself at £9.7bn. And Dunsmore added: “Let there be no doubt: for the team at S&N, shareholder value maximisation is paramount. Nothing is sacred. I passionately believe that Scottish & Newcastle will deliver value to its shareholders that vindicates our response to the consortium proposal.”
Other strategic plans announced by the brewer include a review of its packaging facilities. The company is looking to close its Berkshire bottling plant and move remaining volumes to its facility in Tadcaster. It is also handing over responsibility for brand management and marketing support of its heritage ale and second tier cider brands to Heritage Drinks Limited.
For more information on the UK beer market, see the OLN Beer Report 2007.