A new report says China's dairy industry is undergoing a massive restructuring, with traditional small farmers departing to make way for large-scale commerical dairying operations.
Rabobank's report China's Raw Milk Supply - Still Dreaming of a White River says the rapid changes taking place in China will have an impact on its demand for imports.
Co-author Hayley Moynihan says the restructuring is limiting China's domestic milk flow. She says as the supply chain restructures, is it put under pressure in terms of its ability to increase the volume of quality raw milk supplies.
Ms Moynihan says the Chinese Government has taken significant action to improve milk quality since the melamine crisis in 2008.
"That's meant more regulation in the system and certainly higher expectations for milk quality," he says.
"Those additional regulations have forced many of those very small scale and backyard farmers out of the industry."
Ms Moynihan says high beef prices have also made it attractive to leave the dairy industry.
She says the biggest growth has been in very large scale farms with several thousand cows or more.
Ms Moynihan says the report tells New Zealand farmers that China has challenges in producing high quality raw milk, and that developing farms in China is not easy.
"What that means is that the cost of raw milk in China is relatively expensive on a global scale and it also means that the demand for imports from China is likely to continue to grow for some time."