Rural Ethiopia rolled-out a program for the establishment of farmers’ collective action groups known as ‘Farmers’ Development Groups’ (FDGs), in 2007, based on presumed common interest of smallholder farmers. Although the government trusts that FDGs fetch fast and widescale agricultural transformation as part of the participatory agricultural extension system, systematic study and evidence on what motivates smallholder farmers to act collectively, the group dynamics, long term impact and transformative potential of the agricultural extension groups is scarce. Using the expectancy-value theory in social-psychology, this study explores what drives smallholders to act collectively; their participation level and benefits in groups, particularly for women and the youth; and the extent to which farmers’ groups attain intended agricultural transformation goals of productivity and commercialization. The study collected a mix of qualitative and quantitative data in 2016, through 46 key informant interviews; 8 focus group discussions with farmers, and a survey of randomly selected 120 smallholder farmers (30 percent women) in four sample woredas (districts) of Ethiopia. The findings of the study are drawn through a content analysis, and descriptive and correlation analysis of the qualitative and quantitative data, respectively. The study findings show that social identity, and not ‘common interest’ motivates smallholder farmers to join and participate in FDGs. The study provides evidence that participation in FDGs enhances smallholder farmers’ adoption and use of agricultural technologies, where 96 and 84 percent of the farmers who received extension messages in the group on crop and livestock production, respectively, applied the message. Consequently, by 2015 more than 85 percent of the survey respondent farmers reported above 10 percent increase in crop and livestock productivity. Nevertheless, the nature of the incremental changes brought by the collective actions are not transformative, nor sustainable. Extension groups have limited contribution to commercialization of smallholders, where only 20 percent of the FDG members participate in output marketing. More so, FDGs avail limited collective opportunity for the landless youth, and married female farmers in a rural society where difference in power, status and privilege prevail. It also limits deviation of thought among the rural community. Limited access to inputs and technology; large family size; limited access to farm land; over dependence of the extension system on ‘model’ farmers and public extension agents, and poorly designed sustainability features bound the transformative potential of FDGs. The study forwards a set of five recommendations to unleash the potential of FDGs: reconsider the group design to be identity congruent; ensure inclusiveness for young and female farmers; empower and motivate voluntary group leaders; encourage collective marketing and; invest in sustainability features of the group. / Development Studies / Ph. D. (Development Studies)