A mobilisation of research, knowledge transfer and innovation to deal with the current challenges as raising world food demand while protecting natural resources is a priority area of the EU. The effective knowledge transfer and innovation activities in the agri-food supply chain may push all producers in the vertical to improve their competitiveness while saving resources. In the paper we examine the current level of innovation activities and knowledge transfer in milk processing industry in the Czech Republic, with a particular focus on the collaboration of firms with R&D organisations and other important agents, in order to assess the potential for enhancing sustainable dairy production. Most of the interviewed milk processors confirmed that sustainability objective did not rank high within firms’ strategies while it showed a great potential for innovations. It is apparent from the conducted interviews with stakeholders as well as from the statistics that the level of cooperation for innovations is rather low among the Czech food and particularly dairy processors. The low cooperation level concerns not only research institution but also other agents including farmers. This is in contrast to considering cost as a hurdle for innovations. The lack of cooperation among producers can partly be accounted to property rights protection and the need to get advantage over the competition. The interviews and the statistics showed that companies with in-house R&D staff have higher absorption capacity and thus requirements concerning cooperation with research institutions and that these firms are not satisfied with what is offered in the country and seek support abroad. The current support programme increased the sector innovation activity, but at the same time used-up limited capacities of the national research base. Continuation of the support in the current way seems unsustainable.