the answer has to be C : The effect of Babblers syndrome do not include excessive desire to consume dairy products
for if u negate C the conclusion falls
D is not coming close to conclusion as we are talking of reducing the chances
negation E is not affecting the conclusion either

Assumption of the argument is dairy products are causing BS.

(A) Excessive consumption of dairy products can have a negative impact on the health of people.
-> It does not do anything with the conclusion derived. It can be a fact but irrelevant to conclusion of the argument.
(B) Babblers syndrome is a dangerous disease.
-> Same a A
(C) The effect of Babblers syndrome do not include excessive desire to consume dairy products.
-> When effect is not, then DP consumption should be the cause.
(D) Cutting down on dairy products will ensure that one does not contract Babblers syndrome.
-> Restate the conclusion in different words.
(E) Nothing else can lead to Babblers syndrome except the consumption of dairy products.
-> Doubtful to me... Do not know, why this should not be considered. But
C looks a better answer. States the assumption clearly.

FACT: people suffering from this syndrome consumed dairy products in large quantities.
CONCLUSION: to avoid B.S. reduce consumption of dairy products

The study's conclusion is based on which of the following assumptions?

(A) Excessive consumption of dairy products can have a negative impact on the health of people.
The conclusion is not related to this assumption.(too vague...)
(B) Babblers syndrome is a dangerous disease.
The conclusion is not related to this assumption.(too vague...)
(C) The effect of Babblers syndrome do not include excessive desire to consume dairy products.
CORRECT. excessive desire to consume dairy products is not an effect, we can assume it is a cause of the syndrome and base our conclusion on this fact.
(D) Cutting down on dairy products will ensure that one does not contract Babblers syndrome.
The passage says "reduce the chances of getting afflicted" not "eliminate", as this answer implies.
(E) Nothing else can lead to Babblers syndrome except the consumption of dairy products.
"Nothing else (...) except" is too strong.

OA is "C". Thanks guys for your explanations.

While this is certainly not an official question, with colloquial wording such as "consume them in moderate quantities at BEST" (instead of "at most") we can still learn one of the classic patterns of critical reasoning.

There is an implied cause and effect stated in the conclusion. If one should avoid dairy products in order to reduce the chance of getting Babblers Syndrome then the implication is that dairy products are the cause.

The evidence for this conclusion is the correlation between Babblers Syndrome and the "much larger quantities" of dairy consumed.

With a correlation there are several possibilities. In this case BS is correlated with Dairy. So
1) high consumption of Dairy causes BS
2) BS causes a high consumption of Diary
3) A third thing causes BOTH BS and a high consumption of Dairy (the way that very hot temperatures cause increases in violence as well as increased consumption of cold beverages - the beverages do not cause the violence nor the violence the drinking of beverages!)
4) The correlation is mere coincidence - such as if people scored better on the GMAT on a Wednesday or something.

Now the GMAT really likes the first two! Is the cause really the effect and is the effect really the cause? Here is a good one. There is a question that indicates that owning a laptop computer correlates to a higher salary. And the conclusion is that owning a laptop is the cause of the higher salary! Of course we know it is more likely that those with more money will own a computer so the proposed cause (a laptop) is more likely to actually be the effect.

That is the case with this question as well. It may be that high consumption of dairy products causes Babblers Syndrome, but it could just as easily be the reverse, the syndrome causes high consumption of dairy products. That is what choice C indicates.