The World Trade Organization is currently formulating an agenda for a new round of global trade negotiations. Therefore, the likelihood of increased competition within Canada's supply managed dairy industry is probable. Consequently, there is agreater need for producers to be concerned with efficiency and with their competitiveness in the international marketplace. This study assessed the cost efficiency and competitiveness of Alberta dairy producers by estimating the economic costs associated with milk production, and deriving the physical and economic efficiency of producers. Results support the presence of economies of size and economies of yield within Alberta milk production. A link between increased herd size, labour productivity, and lower total labour costs was identified in the analysis.