COFCO eyes deals for sugar, wine overseas

Mengniu has already taken concrete steps to improve its milk sources, with 94 percent of its milk supplies now coming from large milk farms, according to Wang Yansong, assistant president of Mengniu.

However, Wang added that milk companies can't rely completely on their own dairy farms for milk supplies as the costs - especially land prices - would be beyond the means of the companies.

Song Liang, a dairy industry analyst at the Distribution Productivity Promotion Center of China Commerce, said that seeking milk sources overseas is an inevitable move for companies in the sector as a milk source shortage will be a major problem for Chinese milk producers in the near future.

"The cost of raising cows is rising due to increased epidemic-prevention measures and more expensive animal feed, especially in 2011 and 2012. The risks increased and the profit margins are decreasing," he said.

Milk companies are already suffering from a shortage of milk sources, which started at the beginning of the year, forcing the firms to raise the price of their products.

Mengniu, for instance, has recently raised the price of its products by 4.9 percent on average.

The company said in a recent statement that it was forced to raise the prices because the cost of milk supplies increased by about 12 percent, and in some areas 18 percent, since the beginning of the year.

Song said the recent price surge in milk supplies was due to the fact that too many dairy farmers are abandoning the supply chain. He added that milk companies will inevitably have to seek milk alternative supply sources overseas.

"The speed at which milk companies are building their own dairy farms is far behind the rate at which farmers are pulling out from the industry," Song said.