Quite a few domestic dairy farms are speeding up the pace of their overseas M&A deals to tap into the country's huge demand.

After spending nearly two years convincing authorities that a deal would benefit the local economy, the privately owned Shanghai Pengxin Group Co Ltd completed the acquisition of 16 dairy farms in New Zealand in 2012.

Similarly, China's second-largest food manufacturer, Bright Food Co, is reportedly discussing an acquisition deal with Israel's largest food producer, Tnuva Food Industries Ltd. If completed, the deal is expected to be the largest purchase of an Israeli firm by a Chinese buyer.

China's milk industry is suffering due to its fragmented and underdeveloped supply chain, said Xu at Mintel.

Xu expects to see an industrial integration process especially with policy stimulation and the support of the country's industrial giants.

According to Xu, the strong demand growth makes China an attractive market for international players. And with increasing competition, driving consumption and building brand trust will become key challenges for players in the market.

"The participation of international players will not only make up for the supply gap but will also help domestic companies to acquire state-of-the-art technology and resources," Huang said.