Various policies are being implemented in Tanzania to expand the agro-processing sector. The study evaluates the role that agro-processing activities can play in industrialization and economic transformation of the Tanzanian economy and the impact of policies. The study employs a recursive dynamic computable general equilibrium model to assess the economy-wide impacts of increasing productivity in the agro-processing activities as well as increasing the quantity of educated labour in Tanzania. Increasing productivity increases the exports of agro-processed products and significantly decreases processed food imports and raw agricultural exports. Increasing the supply of educated labour has significant positive effects on economic growth and incomes of rural households.