Despite considerable improvements in the safety and quality of domestic dairy products following the melamine scandal of 2008, China's dairy farmers still face challenges.

The fragmented supply system remains a problem and progress with mergers and acquisitions remains slow, and they face competition from lower-price imports, especially large-scale imports of milk powders.

When milk prices are at a low level it can lead to the dumping of milk and the killing of cattle. The forced large-scale production cuts at a time of slumped prices also make it difficult for dairy farmers to benefit when prices start to rise again.

This can explain why five ministerial-level departments jointly issued a five-year development plan for the domestic dairy industry earlier this year, requiring efforts be made to improve ties between dairy farmers and dairy processors, stabilize the production and sales of dairy products and promote the sharing of both risks and benefits between the dairy farmers and dairy processors. The establishment of such a relationship will mark an important step toward helping China's dairy industry emerge from its lingering slump and help facilitate China's agricultural industrialization.

The recently released development plan seeks to strengthen the standards, laws and regulations in the dairy market, and mainly focuses on adjusting the structure of the dairy industry and guaranteeing the quality and safety of the dairy products.

They include stricter requirements for dairy farms and the processing of dairy products.

To effectively consolidate and strengthen their interests alliance, the dairy farmers and dairy processors should work together to create a bigger interest cake, for example, by trying to making higher value-added products, given that meager profits always create an embarrassing situation of there being "no profits to share" for the two partners that both lie at the low end of the industry chain.