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 of 24% in number of farms in 2014 compared with the current situation 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 eight different milk quality parameters (total bacterial count, somatic cell count, coliform count, freezing point, urea-N, fat content 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 <1%.