In the last few years Croatian economy is restructuring through the processes of market liberalization and closing to EU, which is demanding some significant changes. Agriculture is in the process of reforms on the basis of CAP (Common Agricultural Policy) policies of the EU, and those changes are producing different effects in each agricultural sector. The most sensitive area is livestock production, especially cattle and milking cows (production of meat and milk). This sector has insufficient production. More precise, domestic production in Croatia can satisfy around 80% of one-year consumption. This study shows economic position of production and processing of milk with the emphasis on primary milk production, processing of milk, domestic market and export-import situation. The goal is to consider the situation, position and possibilities for development of this sector.