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Using a comparative case-study approach, this study examines the role of contracting farming in upgrading of small farmers in sugar industry in Tanzania. The focus is on comparing the strategies employed by two LFs (domestic and foreign firms) to coordinate the sugar value chain in Mtibwa and Kilombero districts in Morogoro region. The study also explores the impact of the supply chain to the local economic development. Results suggest that strategies employed by the LFs differ in terms of providing assistance to the small farmers, monitoring of the agreed terms, payment and compliance to the contract. On one hand the foreign firm has developed good relation with small farmers, honour contracts, invested in farmers, pay good price, have been able to attain higher production of cane with higher sugar content. On the other hand the domestic LF has antagonistic and mistrust relationship with small farmers, have not invested in quality of canes from farmers, pay low prices, default contract; have attained low production, low quality sugar content compared to the foreign firm. The strategies between the two differ because the foreign firm has business competency which is applied to gain profit. The domestic LF has business incompetency, therefore compensating by using business with politics strategy to gain profit. Political patronage is used to withstand the pressure and dissatisfaction of farmers. Value chain upgrading for small farmers occurred though with restricted opportunities. The limited upgrading occurred to process and a bit on product, and more process upgrading took place at the level of the FAs than at individual farmers. However, upgrading occurred more to small farmers who operate in the chain organised by the foreign LF, than the one organised by the domestic firm, reflecting the business strategies employed by the LFs. Institutional support also played a significant role to enhance the chain organisation and operation and small farmers upgrading. Even though FAs are present both chains are captive in nature to small farmers because the investment to start the refining is just prohibitive and there are no other refineries in the neighbourhood. In this case small farmers have no alternatives than to sell their cane to LF. Although the chains are captive, it does not mean that they are always bad because even foreign LF can choose to behave like domestic firm; however, there is a limited desire for foreign firm to us political patronage. The impact of the chain on the locality economic development found to be more linked for farmers.