Even after more than 15 years of transition from plan to market, agriculture in Ukraine still faces many challenges in terms of its structure. In particular, both the recently approved WTO accession, and the ongoing negotiations on a free trade agreement with the EU will require improvements in productivity and competitiveness at the farm level. The evidence in the literature based on either data envelopment (DEA) or stochastic frontier analysis (SFA) in Ukraine points to significant heterogeneity of technical efficiency and TFP scores. However, the drivers underlying these patterns have not been explicitly studied yet. Using farm-level data for 2004-2005, this paper investigates the determinants of productivity growth in Ukrainian dairy farming. The results demonstrate significant spatial dependency in pure efficiency and technological components, meaning essentially ‘imitating’ behavior of the neighboring farms in their efficiency and technological progress. Price supports demonstrate negative impact on efficiency, and, however, much weaker positive impact on the technology progress of relatively small farm.