The warning, reported in state media, came from a report published by The Dairy Association of China, which operates under the Chinese agriculture ministry.
It follows the announcement in January from the General Administration of Quality Supervision, Inspection and Quarantine that dairy companies in China must obtain new production licenses by the end of the year or risk closure.
Smaller firms to be hit hardest
The Dairy Association of China said this step could result in the closure of 20 per cent of the 800 dairy firms that are currently licensed. Smaller dairies are likely to be hit hardest by the crackdown as they are least likely to be able to afford the upgrades and improvements required.
The association therefore estimates that the numbers to close are likely to represent 10 per cent of the industry.
The crackdown is the latest attempt from the Chinese authorities to improve quality and safety in the domestic dairy industry. Confidence in the industry plummeted in 2008 when melamine-tainted milk products killed six children and resulted in 300,000 cases of illness.
Fight to improve safety
Since then the Chinese government has sought to restore trust in the dairy industry, cracking down hard on the perpetrators of the melamine scandal and implementing new safety regulations. Despite this, batches of melamine tainted products have continued to appear over the past two years.
And last month the Chinese government sent out a warning about hydrolyzed leather protein, which like melamine, has been used in milk products to artificially increase protein levels and therefore disguise watered down merchandise.
The authorities said they would be on the lookout for leather protein as well as melamine in dairy products testing over the coming year.