This paper uses a Markov chain model to analyse the dynamics in farm size distribution among the Flemish dairy sector and the impact of quota policy regulation on such changes. The model predicts a decline in number of farms in 2014 compared with the current situation of 24% with a more liberal exchange policy and a decline of 18% with a restricted quota exchange policy. From these Markov chain model results, we analysed the impact of farm size distribution on 8 different milk quality parameters (total bacterial count, somatic cell count, coliform count, freezing point, urea-N, fat- and protein content and penalty-points). In general, larger farms produce higher quality milk than smaller farms, especially with respect to the microbiological parameters (total bacterial count, somatic cell count and coliform count). The change in farm size distribution from a liberal quota exchange policy would decrease the average total bacterial count by 18.0%, the somatic cell count by 2.1% and the coliform count by 11.0%. The aggregate performance of the other parameters are smaller with improvements in all cases of lower than 1%.