A large number of small-holder dairy farmers (SDFs), with low yields and low input costs, have led to an inflated, inefficient livestock in India, with a much greater carbon footprint than necessary. The adoption of cross-breeding by SDFs should lead to increased yields. However, cross-breeding is not popular in India as in many other less-developed economies where SDFs dominate milk production. This article investigates whether market incentives are enough to induce the more efficient technique of cross-breeding among SDFs in a fairly competitive environment. We conduct a detailed primary survey on 300 SDFs from Haryana state in India to understand the choices determining breed composition in the herd. Using a system instrumental variable approach to deal with endogeneity and simultaneity, we estimate the impact of a measure of market exposure (based on milk sales) on the household’s herd composition. Our results indicate that market exposure does not automatically lead to adoption of cross-breeding. Farmers generally rear buffaloes and cross-bred cattle similarly in terms of feed and medical care, leading to a loss of potential yield of the cross-bred animals.

JEL: Q22, Q16, O31.