THEORETICAL FRAMEWORK

There are three theories related to why certain changes and improvements in agriculture is

adopted: agricultural change theory, Mellor’s theory and Schultz theory. In this study, only the

Schultz theory of ‘Efficient but Poor’ traditional farming is adopted.

The Schultz Theory is a theory by Theodore Schultz. This theory is about the traditional

agriculture. By the latter term is meant ‘a kind of farming based wholly on the kinds of factors of

production that have been used by farmers for generations’. According to this theory, this kind of

agriculture often, but not always, displays depressing results in that the income generated by it are

very low. The problem that Schultz sets out to solve is how traditional agriculture can be

transformed into a highly productive type of farming.

This problem Schultz regards as an investment problem. Its solution, however, does not lie

simply in the injection of capital into the agricultural sector, but what forms agricultural

investments should take must be determined. Schultz advances the thesis that the traditional

agricultural sector cannot grow with the aid of the traditional production factors only, except at a

very high cost. New, totally different production forces are necessary. Schultz theory is thus a

theory of modernization. He suggested that modern factors have to be adopted, but this will not

take place unless farmers have an incentive to do so. It is the farmers, and their abilities that form

the central element in Schultz theory.

To come grip with this overriding problem, Schultz poses three traditional questions which

he thereafter sets out to discuss:

1. Can low income agricultural communities increase their output by a more efficient

allocation of product factors?

2. Which factors of production are mainly responsible for the differences in growth rates

between agricultural sectors in different countries?

3. Under what circumstances does it pay to invest in agriculture?

Schultz Theory sets out to solve how traditional agriculture can be turned to obtain a highly

productive type of farming. Moreover, this theory presents and covers out agriculture’s

modernization. This theory focuses on how an agricultural sector can improve themselves in

terms of income generation, systematic crop production and capital rotation by incorporating

new and modern techniques, practices, machineries and equipment.

Schultz theory also describes the traditional farming as “efficient but poor”, which means

that agriculture-related officials must try maximizing everything within economic means.

Schultz pointed that people working in traditional agriculture are often very poor rejecting

explanations in terms of cultural traits, like thrift, industriousness and aspirations and that the

rate of return on investments on traditional agriculture is very low so he therefore suggested

that traditional agriculture should and must adopt modernization.