Dairy production in Ukraine, as well as worldwide, is an important sector of the economy which ensures the food security of the country. The Ukrainian dairy sector has many unsolved systematic problems, foremost of which is the decrease in cow productivity and the number of cows. This directly influences the decrease of total milk production, and, as a result, a deficit on the food market. Today, the Ukrainian government has to focus on improving dairy sector support in order to ensure its effectiveness in the future. PAM-analysis was used to evaluate the effectiveness of state agricultural policy in the dairy sector. Research results show that the production system of Ukraine can ensure profitable milk production in private and social prices. But, while dairy producers benefit from cheap internal resources, state policy in the dairy sector impacts profitability of milk production by production trade factors.