And in an effort to raise industry standards and decrease China's reliance on imports, Beijing has introduced major reforms to increase capacity and bring China's domestic products up to an international standard.
While the reforms have been primarily targeted at Chinese firms and cleaning up their own industry, international firms have also been asked to meet much higher standards.
For infant formula, factories are required to be inspected and certified by Chinese officials among a slew of other new requirements. It's forcing smaller, harder to regulate bit-players from the market, but it's also having a significant effect on those who continue to operate.
A number of the major players globally have formed joint ventures for the Chinese market -- Fonterra/Beingmate and Danone/Yashili being two of the most high profile partnerships.
The complexities and size of the market, compounded with the evolving regulatory risk, has forced business to insulate themselves -- and it's not just happening to the large companies.
NZ New Milk is one of the few companies which possess the requisite certification and accreditation to produce infant formula for the Chinese market under the strict new rules.
For the small Auckland producer however, there was a significant delay in receiving approval from the Chinese side -- costing the company significantly and forcing it to lay off staff and cut production.
Diversifying exposure to the regulatory risk inherent in the Chinese environment was essential, but lacking the size of the other aforementioned players meant how that risk was diversified needed a different approach.
Instead of partnering to share the load in China, as part of a major deal, NZ New Milk sold a 50 per cent shareholding to South African pharmaceutical giant Aspen Pharmacare.
While there's interest from Aspen as part of a potential future play into China, the real value for it will be a local base from which to produce a number of its existing brands popular in the Australian market.
The deal for NZ New Milk adds $25 million to the production baseline and provides insulation against losses and lay-offs should there be any further hiccups with the Chinese.
NZ New Milk CEO David Spurway says that while the partnership isn't expected to have an impact on the day-to-day operations of the business, they are moving forward with an increased appetite for growth.
"Aspen have a global reach in their sales, and the volume of product that they are doing means that we will instantly get a much improved production capacity.
"Secondly, with Aspen having primarily a pharmaceutical background -- the significant research and development capability and the potential to integrate that into spray-drying certainly strengthens our net business portfolio."
It's a crafty move by NZ New Milk, but the reality is deals like this are also becoming the new normal for players in the Chinese dairy market -- particularly infant formula.
As the sector continues to reform, it appears that China's own consolidation will have a trickle-down effect to foreign players looking to capitalise on the dairy boom.
• Fran O'Sullivan is a business columnist for the NZ Herald and Alexander Speirs (right) is a business journalist for Herald Business Reports
