A five-year Coordinated Research Project (CRP) entitled 'Integrated approach for improving small scale market oriented dairy systems' is currently being implemented by the Food and Agriculture Organization and the International Atomic Energy Agency, through their Joint Programme on 'Nuclear Techniques in Food and Agriculture'. The objectives are to (a) identify and prioritize the constraints and opportunities in the selected dairy farms; (b) determine the most important limiting factors; (c) develop intervention strategies; (c) assess the economic impact of the interventions; (d) develop methodologies for recording and demonstrating the economic impact; and (e) promote the adoption and dissemination of proven strategies and methodologies. Fifteen institutes in developing as well as developed countries are participating in the project, through ten research contracts (Bangladesh, Cameroon, Pakistan, Paraguay, Peru, South Africa, Sri Lanka, Tanzania, Tunisia and Venezuela), one technical contract (Peru) and four research agreements (Malaysia, U.K., U.S.A. and Uruguay). The initial phase of the project, which focused on the conduct of Participatory Rural Appraisals and Economic Opportunity Surveys in the countries of the research contract holders, has now been completed. This paper describes the background to the CRP approach and the procedures used for developing, initiating and implementing this project.