The knowledge today recaps that’s livelihood of many African farmers are constrained by poor access to both inputs and output markets, limited entrepreneurial skills for adding value to produce and to bargain for better prices and finally limited technical skills in agricultural production. Despite a tremendous attention to salvage this through government interventions and research, there is still a big problem in addressing the smallholder farmer’s needs. Farmer organizations open up opportunities for farmers to better overcome the above mentioned constraints through lobbying and collective action. Drawing from results of Participatory diagnosis and participatory market research done in Nkhate irrigation scheme in 2007 and 2008 this paper examines the effect of effective farmer groups in influencing rice price formation. Results demonstrated that farmer groups have the potential to effectively influence policy outcomes in their favour. This was however achieved through reorganization and mobilization of farmer groups to improve lobbying efficiency and reduce the inefficiencies caused by free riding. The results indicate that from the participatory gross margin analysis which was done by CIAT ( 2007) with rice farmers at the irrigation scheme, it was revealed that farmers have been making losses in the marketing of Kirombero and Super Fire rice varieties and have been realizing a very small positive margin for Mtupatupa a local rice variety. The analysis revealed gross margins of 36.78 US$ ha-1, -182.50 US$ ha-1, and 60.36 US$ ha-1, for Super fire, Kirombero and Mtupatupa varieties respectively. This shows that farmers were making losses when they sold rice to traders at a price dictated to them. However, after farmers were effectively organised in a group and linked to markets, farmers realized gross margins of 681.84US$ ha-1, 664.23US$ ha-1 and 1,028.69US$ ha-1 for Mtupatupa, Super fire and Kirombero rice varieties respectively. The paper further recommends that such farmer groups need to better articulate and deliver benefits to members hence ensuring that these members subscribe to the group and hence finance lobbying efforts which are often costly.