For China's dairy industry buckling under strains of the tainted formula scandal, greener pastures lie ahead.

China's dairy makers have staged a swift return to profits. The best performer was Mengniu, which raked in a handsome profit of 1.12 billion yuan ($164 million) in 2009, followed by Yili's 648 million yuan ($94.9 million) and Bright's 122 million yuan ($17.9 million). Only Sanyuan spilled red ink—a loss of 128 million yuan ($18.74 million)—in part because of costly efforts to rework the distressed assets acquired from Sanlu, the culprit of the scandal.

The magnitude of the bounce-back was a reason to celebrate given how heavily the health scare in 2008 pinched market confidence. On top of the reputation crisis came the economic downturn that promoted consumers to tighten their wallets.

It seems the industry has all but recovered, though the profit growth in part came from market shares left by bankrupt Sanlu, said Chen Yu, a senior analyst with Beijing Orient Agribusiness Consultant Ltd. 

The long-term prospect is also turning around as recovery-boosted income delivers a strong perk for dairy demands, he said.

But one cause for concern was a lack of raw milk as dairy farmers cut back on supplies in wake of the Sanlu incident, said Chen.

Meanwhile, competition is heating up as foreign brands rush to cash in on the China milk market and economic, he added.