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This research on the demand for and supply of milk in the Netherlands combines a detailed empirical analysis with a strong emphasis on methodological aspects. The analysis forms a pilot study for part of an EC dairy sector model. The particular demand and supply functions are derived from theory. On the demand side, information from data has been combined with a priori information. The methodology involved is discussed in detail. This particular working method enables information from cross-section (or time series cross-section) data to be combined with macro data, leading to a consistent result on aggregate level. On the supply side, two concepts are used: a dynamic price reaction and a total price. The very specific lagged price reaction of dairy farmers is investigated, assuming that they attune their production to a total price, which is derived from the prices of milk, beef, calves and concentrates. Many hypotheses about the supply function have been tested empirically. The very popular Nerlove scheme should be rejected for the supply function of milk in the Netherlands. The whole study, which incorporates also margins and margin behaviour, gives a number of clear estimations and test results.