Tobacco has been grown in Tanzania since the 1950s and remains a designated strategic crop. As part of a transformation strategy, the government has turned its attention to strengthening farmer cooperatives. This paper examines the role of producer cooperatives in mediating between smallholder farmers and tobacco-processing companies. The paper traces the transition from public marketing boards to private sector predominance and contributes to an understanding of the dynamics within contractual arrangements between lead firms and farmers. A survey of 228 households followed by in-depth interviews with tobacco-processing companies and cooperatives highlights a shift in power away from village government officials toward cooperative leaders, as the latter have become gatekeepers for various development projects offered by tobacco traders (especially through Corporate Social Responsibility programs) sidelining village executives. However, cooperatives still have limited bargaining power to negotiate better deals for tobacco producers, little capacity to influence the inputs distribution system and no control over side-selling. These findings shed light on the political role of cooperatives and the limits of their incorporation into rural development strategies.