Abstract: The study was conducted during first quarter of 2010 with the purpose of investigating the factors affecting marketed surplus and income. Data was collected from Gall Matara and Hambantota districts. Primary data was collected from 119 farmers through personal interview method with the help of a structured interview schedule. MS was varying from 0-55 L with the average of 7.62 L (82.79%) per day. With regard to the income, around 24% of the respondents had personal monthly income in the range between Rs. 10,000 and 15,000 and had Rs. 14,141 as mean income. Majority of farmers have done dairying as an alternative income generating activity. Farm families earned Rs. 7,861 as average income. Majority of farmers (62%) sell their milk as raw while 24% prefer to sale value added product. Unit price of milk, sales amount, production, number of milking cows and subsidy received by the farmers have influenced directly on milk income. Interestingly, knowledge on feeding, maintenance of pasture land, clean milk production, productivity, credit received and farmer’s educations have exhibited indirect influences on milk income. Extension activities has influenced to obtain high income through getting high price while farmer’s education has influenced to get high income by increasing selling amount through increasing productivity. It is therefore, recommended that relevant authorities need to take action to strengthen the present mode of extension. Receiving subsidy and credits the have influenced to obtain high income via increasing production, sales amount and received unit price. Therefore, providing subsidies and credit are major requirement to enhance the livestock sector as an agricultural business.