Interstate trade has been a feature of the policy debate for several agricultural products in Australia, including wheat, eggs and dairy products. Interstate trade in market milk has been an on-going policy issue since the early 1970s, but has largely been prevented by informal agreements and threats of retaliation. Formal arrangements preventing free interstate trade are unlawful, being contrary to Section 92 of the Australian Constitution. Due to recent changes in the marketing arrangements for manufacturing milk, interstate trade in market milk now has the potential to rapidly deregulate the whole Australian dairy industry, with the consequent problems of resource dislocation and adjustment The potential impacts of interstate trade in market milk are discussed below, commencing with a description of the background and situation as 31 December 1987.