Since dairying is practised as a component of mixed farming systems, it becomes imperative to take into account interrelationships among enterprises and general economic factors while fixing the milk price, instead of simply following the existing/traditional pricing system. In this connection, this study has dealt basically with three issues: (i) identifying defects in the existing/traditional pricing system being followed by the dairy business centres, (ii) developing a long-term pricing model, based on cost of production and net income, and (iii) projecting different price scenarios of milk in future by simulating general economic conditions. For the study, undertaken in the Tamil Nadu state, a sample of 20 households rearing buffaloes has been selected randomly from the eight selected villages, thus making the total sample of 160 farms. The data have been collected on socio-economic characteristics and input-output parameters of dairy enterprise for the year 2002–03 for both flush and lean seasons. Normalized restricted quadratic profit function and price determination models have been used to analyse the data. The study has revealed that for sustainable returns, the milk price needs an upward adjustment of 9.97 per cent, and to provide a constant net monetary income, the milk price needs an upward adjustment of 10.30 per cent for the buffalo milk. Considering 2002–03 as the base year, the per litre price for milk has been projected to be Rs 23.64 at constant monetary income and Rs 23.15 at constant return to production cost in the year 2009–10. The results of the paper are illustrative of the utility approach in generatingconsistent price sets for milk in response to alternative policy interventions.
