Announced at AgriScot by CabSec Richard Lochhead it will be headed by Scotland Food and Drink chief executive, James Withers, who will report to ministers by the end of next March.
Mr Withers will be supported by a business advisory group, including high profile figures from the Scottish dairy sector, and the membership of the group will be confirmed shortly.
The review, which will encompass all parts of the supply chain, will:
n Review the efficiency and competitiveness of all parts of the Scottish dairy supply chain
n Assess the opportunities for greater collaboration among primary producers and the scope for further partnership working and integration
n Consider the UK and export market opportunity for value added Scottish dairy products
n Explore the potential for generic Scottish market development and support
n Evaluate primary production and processing capacity, with a view to maximising export potential and displacing imported dairy products
Speaking at AgriScot Mr Lochhead said: "Scotland's dairy industry has huge potential yet, despite this, the sector has faced challenging times thanks – largely – to fluctuating market returns due to volatility in world commodity prices and outmoded contractual relationships.
"That's why I brought forward a five point action plan to address the various issues facing our dairy industry and this strategic review, is a key part of this plan."
Mr Withers said: "We have witnessed a decade of frustration in the Scottish dairy industry, during which milk production has fallen and half our dairy farmers have quit. It is time for change.
"What we need now is a clearer focus and a collective desire to consider real change. That meas developing a long term growth plan for the sector and challenging ways of doing business."