The purpose of the study is to assess the economics of dairy farming in the state of Orissa, one of the poorest states in India, and to evaluate the prospects for improving the dairy income for small-scale producers, which currently form the backbone of the dairy industry. The study applies a method of economic analysis developed by the International Farm Comparison Network (IFCN) which is based on the concept of 'typical farms'. Three broad farm types were selected to represent 'typical farms' in the state: farms stall feeding two dairy animals (buffalo or local cattle), representing the most common farm type found in the state, farms with six dairy animals, located in peri-urban areas benefiting from good market access, and rural farms practicing a form of pastoral production system in areas where communal grazing land is available. Each farm is described in detail with assets, production costs, profits and other economic information presented both graphically and in the text. A comparison with similar farms in the state of Haryana is provided. The study finds that all farms cover the dairy cash costs but that on the smaller farms returns to family labour are below local wage rates. However, the small scale dairy farms will persist as long as alternative employment opportunities for family labour are scarce. It also appears that there is a large potential to reduce milk production costs of smallholder dairy farming and increase family farm income through milk production by better breed, feed and herd management. Although milk yields in Orissa are much lower than in Haryana, farmers in Orissa produce milk at competitive costs due to lower land costs and lower wage rates. The availability of grazing land in Orissa and cheaper feed also contributes to lowering the costs of milk production. Smallholders using buffalo for milk production in Orissa were found to be more cost competitive than similar farms in Haryana. Hence suitable strategies to promote such buffalo-based systems should have potential for improving the production and competitive position of dairying in Orissa.