The aim of the current study was to characterise and evaluate production system of smallholder dairy farmers using an index based on combined score of animal welfare and milk quality. Farms were grouped into three categories, tier 1, tier 2 and tier 3. To test the robustness of the characterisation, milk yield (MY), calving interval (CI) and body condition scores (BCS) were used. In the study area, the majority (66.3%) of smallholder dairy farmers practiced cut-and-carry as compared to 15.3% who grazed their cows. The rest combined cut-and-carry and grazing. Cows of farmers in tier 1 had the lowest mean MY (5.4 kg/day, SE = 0.4), lowest mean BCS (2.1 kg/day, SE = 0.09) and longest mean CI (603 days, SE = 27) than farmers in tier 3, mean MY (10.8 kg/day, SE = 0.6), mean BCS (2.6, SE = 0.06) and mean CI (404 days, SE = 17). The study demonstrated that a simple and yet novel method based on farm level indicators can be developed and could assist to timely identify specific problems on the farm.