"This model gives farmers a higher share of the value added, improving their bargaining power and reducing market risks, meanwhile it guarantees quality, safety and sustainability," Schaap said.

China has an annual growth rate of about 6 percent for dairy product consumption while production expansion lagged behind to be around just 2 percent, said Bi Yu'an, a senior official with China Food and Drug Administration.

The demand-supply gap for safe and high-quality dairy products has widened because of the lack of incentives for dairy farmers and loose cooperation between firms and them, Bi added.

Chinese consumers prefer foreign dairy brands due to a lack of confidence in domestic products. This is a hangover from a trust crisis in 2008 when a dairy firm was found to have added cancer-causing melamine in baby formula.

Zheng Xinli, vice executive secretary with China Center for International Economic Exchanges, a leading Chinese think tank, believes one key problem compromising the country's food safety is the lack of a share-holder mechanism to drive farmers to ensure food quality.

"Firms and farmers should work together for mutual benefits, and cooperatives can pave the way for developing reassuring made-in-China products," Zheng added.