The Brazilian dairy industry is still in its infancy, especially in regards to competitiveness on foreign markets. Therefore, it is facing difficult challenges to upgrade in terms of professionalisation, productivity and technological improvements, but also to avoid exclusion of small-scale farms. This study identifies the main factors affecting the competitiveness and slowing the modernisation of the supply chain in one of the most promising and dynamic dairy production areas in the world – the mesoregion ‘Grande Fronteira do Mercosul’ in Southern Brazil. The analysis is based on the perceptions of supply chain leaders about the challenges to improving the industry’s competitiveness. The paper also presents various strategies already implemented by some actors to overcome such barriers to competitiveness. The empirical results have manifold implications. One of which is that the problems and strategies must be the target of managers and authorities in a sustainable common project of development to the benefit of the whole dairy supply chain.