China has become the world's most competitive and dynamic dairy market, said Zhang. "We must constantly develop new products to meet the needs of sophisticated Chinese consumers."

Despite a weakening market last year for fast-moving consumer goods, dairy producers kept up the momentum. The top two players, Yili and China Mengniu Dairy Co Ltd, achieved double-digit growth rates.

Yili's revenue for last year is estimated at 55 billion yuan, up 15 percent, with profit of about 4.5 billion yuan, a surge of 40 percent.

The maker of Shuhua milk, which was developed for many Chinese consumers who are lactose-intolerant, has become a leading item in the dairy market.

Its market share grew from 18.2 percent in 2009 to 25 percent in 2014.

As resource-constrained country, China is not a very good place to farm, said Jason Yu, general manager of Kantar Worldpanel. Learning from foreign experience and gaining advanced industrial technology will help Chinese dairy producers maintain market leadership and evolve.

More appealing to middle-class Chinese consumers is the availability of e-commerce. That trend, combined with the improvement of the nation's logistics system, have eroded barriers of regional dominance among dairy producers and enabled foreign competition, he said.

Domestic players such as Yili should strengthen their advantages in traditional distribution channels and diversify their product portfolios.

"A strong domestic brand and producer will better integrate its resources and benefit consumers in the long run," said Yu.

Global strides

On March 26, 2015, Yili inked an agreement with the Netherlands for a Chinese dairy R&D center at the Wageningen University to study variability in milk composition and create a food safety identification system.

In 2014, Yili's first major overseas plant was set up in Glenavy, South Canterbury, New Zealand with a total investment of more than 3 billion yuan ($483 million).

Yili formed a strategic alliance with Italian dairy producer Sterilgarda Alimenti SpA to produce liquid milk products for the domestic market in China.

Yili also signed a deal with US milk cooperative Dairy Farmers of America to set up a dairy plant in Kansas. The new plant plans to produce 80,000 tons of milk powder a year.