Quality is an obsession following China's post-melamine scandal in the dairy industry, involving strict quarantine and rigorous testing.

Lian Fang, a dairy expert at Beijing Orient Agribusiness Consultants Ltd, said the move aims to rebuild the trust of customers, which was hurt by the 2008 chemical additive disgrace, and will increase the global competitiveness of domestic infant formula companies in a market where 60 to 70 percent of the share is in the hands of foreign companies.

"The problem of the Chinese dairy companies is mainly focused on the source of the milk," Lian Fang said. "We need more skilled cattle caretakers to take care of the services such as vaccination and quarantine."

Song Liang, a dairy analyst from the Distribution Productivity Promotion Center, echoed the comments and said there's no apparent gap between China and the rest of the world in terms of dairy processing. "The subsidies are not enough to help them grow stronger. They still need investment, cooperation and family farms," he said.

"If the quality of raw milk is better controlled and guaranteed, the rest will become much easier."

He added the plan to support five key dairy producers will strengthen their capability to better rival foreign counterparts, which are traditionally strong in first- and second-tier cities.

There are a total of 127 infant formula companies in China with a total annual output of 600,000 tons. Only three companies have an annual output of 30,000 tons or more. Revenues for the top 10 domestic brands are around 18 billion yuan.