Exotic dairy cattle have been adopted in the transitional zone IV of Kenya contrary to the opinion of experts
who previously hypothesized that the "drier transitional zones" could not meet the requirements of the
high performing exotic breeds. However, the economic efficiency of these breeds and the factors
influencing them have not been ascertained and growers in the region are using these breeds. This study
surveyed smallholder dairy farmers in the transitional zones of Machakos and Makueni Districts, and used
a stochastic frontier translog cost function approach to determine their efficiency. The findings show that
cost inefficiency ranges from 0.01 - 81.11, with a mean of 27.45%. Exotic dairy breeds are the most
efficient in the transitional zones. Ayrshire achieved the lowest cost inefficiency (24.36%), followed by
Friesians (25.08%) and Jersey (25.54%). Sahiwal (28.43%) has the lowest cost inefficiency among the
indigenous breeds. The cooperative societies in the transitional zone IV were more efficient than those
in the Upper Midland (UM) zone. Road infrastructure, extension and credit significantly reduce cost
inefficiency. Keeping dairy records and primary level eight education are the key characteristics
influencing efficiency. Policy and decision makers can use these institutional and socio-economic findings
to inform education and policy aimed at improving efficiency of dairy production in the transitional zone IV
in the medium potential regions.