Dairy farming operations in China are mostly small scale and lack funds and facilities. After milking mechanization developed, private milking businesses appeared, providing milking service for charge for farmers who have no milking machine. To strengthen the raw milk procurement system and make it traceable, dairy processors have started vertically integrating such private milking stations. In some cases, the processors even promote contract farming with farmer cooperatives which includes the milking process. Meanwhile, the establishment of large scale dairy farms operated by processors or the private sector has become common. In major existing studies, the vertical integrated raw milk distribution initiated by dairy producers in China has been assessed as an effective way to improve not only the quantity and quality of raw milk but also the income of dairy farmers, as long as the processors keep monitoring the whole supply process with responsibility. But the rapid expansion of dairy industrial capital investing in raw milk production and distribution also could create negative impact on dairy farming section. This study aimed to identify the problems of dairy processor and raw milk producer under the current milk business condition. Toward this objective, four research tasks were undertaken. First, raw milk distribution in China were analyzed using existing literature sources, which provides an understanding of past research. Second, dairy production development in China was surveyed from a historical aspect, which confirmed that the change of farming section was strongly influenced by the evolution of dairy industry. Third, the raw material procurement structure for processors was examined by studying cases from a field survey. Fourth, the impacts from the current raw milk procurement structure were assessed.