Concepts of agricultural transformation promote market liberalization and commercialization of small farms as strategies for growth and poverty reduction. But small-farmer participation in globalizing agricultural markets is risky. In OECD countries, farmer collective action has managed to reduce some of the risks of participating in the market by forming powerful vertically integrated cooperative organizations. This chapter discusses key issues in the discussion on pro-poor agricultural development and identifies the position and functions of rural cooperatives for a concept of pro-poor agricultural transformation. Differentiating between types of farmer-based organizations, concepts of rural transformation, determinants for successful collective action and dimensions of poverty, the chapter seeks to conceptually contribute towards explaining why cooperatives are often presented as tools for poverty alleviation although the results of analysing their effectiveness in alleviating poverty are rather mixed. The chapter draws conclusions for future research on the subject and for drafting group-based development policies.