Market milk policies pursued by statutory milk marketing authorities differ between states in Australia. The policy differences are particularly large between Victoria and New South Wales and are thought to produce different levels of farm costs. It was hypothesised that the New South Wales policies produced higher farm costs than the Victorian policies. This hypothesis was tested using three-year data for a set of dairy farms located on both sides of the border in a fairly compact and homogeneous part of the Murray River basin. Hence, farms were studied that operated under different milk policies but similar environmental conditions. The analysis found that the New South Wales policies did lead to higher farm costs.