In 2008, the country imported 128,000 tons of milk powder. The figure rose to 850,000 tons last year and is expected to reach 1 million tons this year.

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Foreign, local dairies to milk profits from smaller industry

But last August, there was a decline in confidence in products from New Zealand following a recall of dairy powder products by New Zealand-based dairy producer Fonterra Co-operative Group Ltd because of quality concerns.

Botulism-causing bacteria was found during safety tests. About 1,000 tons of products were affected by the recall across seven countries, but no cases of sickened consumers were reported.

China temporarily banned the import of the ingredient from New Zealand.

The incident, though later proved a false alarm,pushed domestic dairy enterprises and food producers to look for sources in China.

Song said investment in the dairy sector originally focused on dairy products but has expanded to farms.

Under the terms of infant formula milk production permits issued by the authorities at the end of last year, dairy enterprises are required to have their own dairy farms to supply raw materials.

Dairy giants are also encouraged to form a complete industry chain to ensure product quality.

Song said that because prices of raw milk will remain high, more investors will be attracted to the sector for healthy profits.

In 2013, about 658 dairy companies recorded 18.7 billion yuan in profits, up 12.7 percent year-on-year.

According to Euromonitor International, China's total dairy consumption grew at an annual rate of 10 percent over the past five years, with premium dairy consumption nearly doubling its market share from 10 percent to 19 percent. This was due, in part, to continued consumer concern over food safety and increasing health awareness.

In July, Fonterra and US dairy giant Abbott Laborato-ries signed an agreement to develop a dairy farm hub in China.

The move is expected to leverage Fonterra's expertise in dairy nutrition and farming in China to help Abbott's localized production in the country.

Fonterra and Abbott plan to form a joint venture to invest a combined $300 million into the farm hub, which will contain up to five dairy farms and more than 16,000 dairy cattle, producing up to 160 million liters of milk annually.

The first farm is expected to be completed and start producing milk in the first half of 2017, and the remaining farms are scheduled to start operations in 2018.