MANHEIM, Pa. - On a warm July morning inside the cavernous dairy barn of Kreider Farms, 1,200 cows go about their daily business.

The black-and-white Holsteins munch top-secret feed mix. They lounge in stalls with giant fans overhead and water misters when the humidity spikes. And they mosey over to the modern milking parlor twice a day, where they hop on the cow carousel to be milked.

The milk is shipped by tanker truck to a plant to be bottled or turned into ice cream. The fate of what comes out the hind end is less appetizing.

Mechanized rakes roll through the barn, forcing manure into drains with conveyor belts that ferry it to a giant lagoon. There, the cow poop waits to be sprayed onto crops as fertilizer.

Until now, that is.

An environmental-technology company, mindful of manure's polluting effects on the Chesapeake Bay and other watersheds, is trying something new.

Untreated fertilizer is high in nitrogen and phosphorus that migrate slowly to waterways, wreaking havoc with the ecological balance and aquatic life. But Colorado-based Bion Environmental Technologies is betting the farm - Kreider Farms, which sprawls over 3,500 Lancaster County acres - that it can turn millions of pounds of cow waste into safe fertilizer and renewable energy.

Bion has installed a multimillion-dollar demonstration project, set to be formally unveiled here Thursday, to test new technology designed to confront the leading pollutant threatening the Chesapeake and other watersheds: "nutrient waste."

The manure is funneled into a machine, similar to what's used in the pulp and paper industry, that separates out the cellulose, or digested feed. The cellulose is released as a fine, mulchlike product that will someday be used as fuel. For now, it is converted to bedding for Kreider's cows.

It is almost odor-free.

The remaining waste goes to the big outdoor lagoon - but doesn't just sit there. Billions of bacteria work to stabilize the nutrients so that when nitrogen is released, it is in a harmless form. Then the waste heads to a centrifuge, where the concentrated biomatter is extracted.

The end result? A fertilizer that has far less potentially damaging nitrogen.

"Before, when the waste sat in the lagoon, half of the nitrogen escaped into the environment before it was applied to the land," said Jeremy Rowland, Bion's chief operating officer. "In a concentrated form it reduces the amount of commercial fertilizer needed, and there's a lot less nitrogen in waterways."

Rowland, with a background as an ecologist, is giddy about the project. On a tour of Kreider Farms, which is serving as a working environmental lab, he excitedly points out how his company is using existing infrastructure - such as the manure pit - and leaving a modest footprint in the form of two small buildings holding the waste-separating systems.

"We're at the source of a lot of the problem in the Chesapeake Bay," he said, looking out over green cornfields toward Chiques Creek. "We can clean it up at the source. It can get a lot more expensive when it gets into the water supply."

The use of so-called manure digesters on farms is not new. Similar systems are used throughout the country, with the end product being methane - a fuel that is useful but hard to transport, so it typically goes to powering only the immediate farm.

The Bion system, developed with the help of a $7.5 million state loan, removes the nitrogen, which in small doses is beneficial as fertilizer, but in large quantities threatens aquatic life.

The system also leaves a much more transportable fuel, in the form of the cellulose "mulch."

"We can say with Bion, 'Here's a pile of stuff that we are removing that is not going into the watershed,' " said Ed Schafer, who was governor of North Dakota and agriculture secretary under President George W. Bush before joining Bion, where he is executive vice chairman.

The leading generator of nutrient pollution - that is, chemicals contained in manure from livestock - is agriculture. So it stands to reason that Lancaster County, with its fertile farmland and high number of dairies, is a leading source of such pollution. The county has the second-highest agricultural production east of the Mississippi and is the nation's fifth-largest livestock producer.

Here in the Chesapeake Bay watershed, livestock outnumber humans by 11-1, according to the nonprofit Chesapeake Bay Foundation, which is trying to clean up the bay and sees agriculture as the leading offender.

"There is a real pressing need to find alternative ways of handling manure," said Jan Jarrett, president of PennFuture, a statewide environmental advocacy group.

The federal Clean Water Act in the last 40 years has reduced so-called point source pollution or effluent from factories and sewage treatment plants. But farming, which was exempt from the act, increasingly has been responsible for more pollution, damaging waterways by flooding them with nutrients.

When manure is used as fertilizer, nitrogen, phosphorus, and other potentially damaging chemicals eventually (often in about two years) make their way to groundwater and streams, and to bigger waters such as the Chesapeake.

The chemicals cause explosive growth of aquatic vegetation, which eventually sucks oxygen from the water; that, in turn, kills fish and other aquatic life, threatening the bay's fragile culture and economy.

Nationwide efforts are under way to reduce such pollution, with the U.S. Environmental Protection Agency setting goals for states. That's where Bion comes in.

Jarrett said she was encouraged by the potential of the company's system because it addresses the pollution and creates a renewable energy source. But she and others cautioned that few farms could generate the capital needed to invest in such a system. "I'm glad there's a model out there, but small farms can be big problems," she said.

Jarrett and Kelly O'Neill, agriculture specialist for the Chesapeake Bay Foundation, said they would like to see more small-scale projects that are within reach of more farmers.

Bion's Schaefer suggested that someday, farmers will be able to form cooperatives, pool resources, and create regional waste processing systems. In the meantime, he likes the fact that Bion is testing its technology on a farm that, by virtue of size, has been a major contributor to the pollution problem.

He said such farm-based systems may also help mend fences between two frequent adversaries: agriculture and environmentalists.

"It's an opportunity to do some healing," Schafer said, "and allows agriculture to be part of the solution."

To watch a video of Bion's chief operating officer Jeremy Rowland at Kreider Farms in Manheim, Pa., go to