ISSN: 2278-3369 International Journal of Advances in Management and Available online at www.managementjournal.info

RESEARCH ARTICLE

Agricultural : These Still Exist?

Ali A. Nurmohamed*, Muhammed Ashraf

Ryerson University, Canada.

Abstract The purpose of this paper is to examine the negative impact agricultural subsidies have on the United States of America’s (U.S.A) economy. Although the impacts of American subsidies can be felt worldwide, they fall outside the scope of this paper. This paper will examine and analyze how agricultural subsidies came to be, the justification behind such policies, how these policies have formulated and strengthened agricultural monopolies and how today, the government continues to fund this policy despite it being a flawed, outdated practice. Specifically, this paper will examine popular economic theory which initially influenced American economy policy; thereby supporting agricultural subsidies. By considering the immense financial burden on taxpayers whilst focusing on the long-term consequences of this policy, this paper will appropriately conclude by supporting the elimination of agricultural subsidies entirely. Introduction Why do American farmers who cultivate and resources to be used more productively; specific crops obtain immense financial promotes growth and development; creates support through government agricultural jobs; and raises standards of living [3]. subsides despite the fact that [1] America is no longer freeing up capital and is not considered a main contributor to the resources which can be used more United States economy? Are these subsides productively and efficiently. Comparatively, merely fragments of flawed agricultural they continue to fund a policy measure that policy within the United States of America, has become outdated; thereby hindering or have they produced enough tangible their economy. results which justify the exorbitant financial price the American taxpayer has been The thesis of this paper coincides with the burdened with? These questions will be metaphor of the invisible hand coined by explored and analyzed in-depth. Adam Smith, a neoclassical economist. Smith believed that by allowing all economic It can be hypothesized that agricultural classes to seek their self-interests in a subsidies are harmful to the American competitive system, capitalism would economy as heavy government intervention produce the most productive outcome in the form of subsidies has not only become possible; at this stage government outdated, but has developed and promoted intervention would only be harmful [4]. agricultural monopolies. Agricultural Agriculture, as a component of a nation’s subsidies no longer serve their intended economy, must not be considered an outlier purpose, nor do they benefit the once to this rule. Government intervention has thriving American economy. Rather, they proven harmful and many wonder why? In have simply become a tax burden and have order to adequately respond to this question, rewarded inefficient farmers by encouraging one must first have a thorough them “…to grow unprofitable crops far understanding of agricultural subsidies: beyond what consumers actually need” [2]. what they are, what they do, who qualifies for said subsidies, and why they were As Adam Smith first observed more than established. two centuries ago in The Wealth of Nations, What are Agricultural Subsidies? by capitalizing on what different countries do best, lowers costs; frees up capital The Great Economic Depression coincided

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Available online at www.managementjournal.info with the rise of Keynesian Economics. weather events, including but not limited to Elements of Keynesian economics can be droughts, hurricanes, and tornados greatly seen throughout many facets of American impact a farmers ability to cultivate economic policy, most notably, agriculture sufficient crops. policy. The resulted in mainstream economic theory being “The U.S. government heavily subsidizes reevaluated. Keynesian economics proposes grains, oilseeds, , , and the use of government intervention to save products. Most other agriculture-including capitalism from itself [4]. Essentially, the beef, pork, poultry, hay, fruits, tree-nuts, Keynesian economic model supported and vegetables (accounting for about half of government spending in order to compensate the total value of production)-receives only for times of low investment and consumption minimal government support” [6]. One may by borrowing money to increase question why specific crops are subsidized expenditures. In turn, this would encourage while other is not. spending; thereby strengthening the economy and returning it to its functioning The world today is increasingly more state. This economic theory influenced interconnected nations rely upon one government figures and this resulted in the another for various sources of food. If a creation and implementation of a flawed crop’s yields are affected in a manner in economy policy that continues to plague which the supply is unable to meet the American taxpayers. global demand, the cost of said crop will rise. In an attempt to maintain a form of price Understanding economic theory that was stability, the United States (U.S.) prominent during this time period will government, and many other governments enable researchers and academics alike to across the world have turned to agricultural fully comprehend why agricultural subsidies subsidies. were viewed as a good idea. No longer was History of Agricultural Subsidies Adam Smith’s laissez-faire approach to the market appropriate for capitalism had Agricultural subsidies are not a new seemingly come to a halt at the hands of the phenomenon in many financially prosperous Great Depression. Keeping Keynesian nations. Many question how the government economic theory in mind, one can question became intertwined with farming in how effective this form of government America. “The Constitution is clear on the intervention really was on enhancing the subject. Article 1, Section 8, provides no role American economy. for the federal government in regulating American farmers. And that is the way it Agricultural subsidies are in the form of, “… was (with rare exceptions) until about 1930” a program that makes direct payments to [7]. The First World War was a period of farmers for certain crops based on the high demand for American supplies, farmers’ historical acreage or yield, while particularly food. However, the years ignoring current prices or production” [5]. following the War, American farmers were Essentially, payments from the government in debt for the supply of crops exceeded the to producers of agricultural goods are made demand [8]. The 1930’s signified an era of in order to achieve a variety of intended depression. The effects of the Great purposes. Some of the main intentions are to Depression and Dust Bowl, “…caused crop ensure farmers are paid an adequate wage, prices to fall by approximately 60%”[8]. How stabilize , and promote and was the American government to respond to ensure sufficient food is produced. All of such a catastrophe that was pushing which is intended to strengthen the farmers deeper in debt? agricultural portion of the U.S.A’s economy. The rise of global warming has made As stated before, it can be hypothesized that farming practices increasingly more difficult, agricultural subsidies are harmful to the for crop yields can fluctuate based on American economy. The disastrous effects of weather. The increased frequency of extreme subsidies were witnessed immediately,

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Available online at www.managementjournal.info yet the government never abandoned such a “Agriculture accounts for an ever-shrinking devastating program. Folsom[7] argues The share of economic output in most developed Farm Board’s decision to fix the price of countries. But subsidies continue to flow at and cotton only was disastrous for very high levels” [9]. There are many this decision led to the overproduction of supporters and dissenters of agricultural both crops as many farmers abandoned the subsidies. The proponents of these subsidies cultivation of other crops and shifted to believe their arguments have merit as they, wheat or cotton for they were protected and provided a secure income by the U.S. …have argued that such programs stabilize government. The continued overproduction agricultural markets, low- of wheat and cotton resulted in the income farmers, raise unduly low returns to government being forced to purchase surplus farm investments, aid rural crops, 250 million bushels of wheat and 10 development…help ensure national food million bails of cotton, and eventually sell security, offset farm subsidies provided by them on the world market at huge losses [7]. other countries, and provide various other It is apparent agricultural subsidies failed at services. However, economists who have the onset of their creation. “…The farming tried to substantiate any of these benefits industry, even after the Great Depression have been unable to do so [6] had long vanished, was and is dominated by the ideas of payments to reduce crops and Thus, many questions remain surrounding fixing prices at higher-than-market levels. the validity of agricultural subsidies and their contribution to the American economy. American politicians, under pressure during Although this policy may have perceived hard times, sacrificed the Constitution and strengths like aiding low-income farmers, economic sense for votes at the ballot box” this can also be considered a weakness when [7]. Once entitlements in the form of considering the impact of agricultural agricultural subsidies commenced, they subsidies in the modern context. It is became difficult to revoke as more farmers imperative to understand and acknowledge began to rely on them annually. It is quite the perceived strengths of this policy no evident that agricultural subsidies once longer ring true today. served an important purpose, regardless of them failing almost instantaneously. Despite Figure 1 [10] highlights the value added to this, why was this course of action America’s Gross Domestic Product (GDP) by continued? Why do agricultural subsidies agriculture and related industries between continue to burden tax payers in 2015, 2006 and 2013. The ‘’ category is the eighty-five years after the Great Depression? primary focal point for this section. In 2013, Do agricultural subsidies serve the same “the output of America’s farms contributed purpose they were intended to serve when $166.9 billion…about 1 percent of GDP” [10]. instated? $166.9 billion may be considered a substantial amount of money; however it is Agricultural Subsidies in the U.S. A. quite minuscule in comparison to America’s overall GDP.

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According to the World Bank, America’s Though only accounting for 1% of the GDP in 2014 was $17.42 trillion dollars. nation’s GDP, immense financial support Although farms account for only 1% of the continues to flow to farmers in the form of nation’s GDP, the money invested in the agricultural subsidies. Regardless of the American economy through agricultural questions surrounding the manner of subsidies remains insignificant. “In total, spending public funds on such a small part the value of U.S Department of Agriculture of the U.S. economy, the problem with these programs to the U.S agriculture industry at subsidies intensifies. Government financial $180.8 billion in 2009”. Once again, these support continues to rise. Figure 2 (United statistics fail to prove the benefits of States Bureau of Economic Analysis, 2015) agricultural subsidies. It is quite evident visually explains the positive trend of agricultural subsidies are failing to increased public funds being used to support strengthen the U.S. economy. this flawed economic policy. Although a substantial dip is visible after 2005, one

must account for the impact of the Great American economy, one cannot consider the Recession that commenced in mid-2007 and impact of agricultural subsidies without arguably has continued to this day. Can simultaneously questioning both the spending over $10 billion U.S. dollars in formation and role of farming monopolies. 2014 be considering an efficient and “In the 1930s, 24 percent of Americans appropriate use of public funds? Is this worked in farming; in 2002 it was 1.5 investment really strengthening the U.S. percent”[11]. When one wonders what a economy when farming accounts for 1% of typical American farmer looks like, the the nation’s GDP?-After an in-depth photo in their mind should no longer be an analysis, the connection between this and individual or family working land on a farm. faming monopolies is rather vivid. One of the major concerns surrounding subsidies Evidently, individual farmers in the U.S. lies in who is receiving government continue to decline annually. Taking their agricultural subsidies. place and forming a “…dense concentration of market share in the Farming Monopolies industry…” are a handful of agribusiness firms like Monsanto and Cargill [8]. Figure 3 Given this paper’s hypothesis that [12] exemplifies the very dangerous nature agricultural subsidies are harmful to the of farming monopolies given as few

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as ten corporations control nearly any item dollars, has annual sales of $14.93 billion available in a grocery store. How did this dollars, and has 22,000 employees. Surely a come to be? Simply put, with the help of small-scale farmer cannot compete with a agricultural subsides. coloration of this magnitude irregardless of the fact that farmers in the 90th percentile “In 2008…large commercial firms, those received $30,751 annually, compared to with gross annual sales in excess of those in the bottom 80% collecting a mere $250,000, received 62% of all government $579 annually between 1995 and 2010 [8]. payments while small rural residence and These mega corporations are in an intermediate farms each received only 19%” advantageous position over their minimally [8]. Further evidence supporting the misuse subsidized competitors. It is quite easy to of public funds and agricultural subsidies understand why the number of American being disproportionally collected can be farmers is continuously shrinking whilst found in the state of Texas. According to the mega-corporations like Cargill and Environmental Working Group (EWG) Monsanto continue to grow. “The outsized (2012), farmers in Texas have collected $27.3 revenues of corporate farmers are facilitated billion dollars’ worth of public funds through not because of superior business strategies agricultural subsidies from 1995 to 2012, the but rather due to their benevolent relations most in the country. 10% of farmers collected with those on Capitol Hill” [8]. 78% of all subsidies whilst 81% of farms in the State failed to collect any form of This contradicts the very fabric of the U.S. payments (EWG, 2012). Herein lies the economy. No longer does the free market greatest downfall with agricultural prevail when corporations are receiving subsidies. Unfortunately, subsidies have financial support from the government. The shifted away from their intended purpose: to inefficient use of public funds has only ensure a steady income for farmers whilst prolonged this flawed policy approach, yet it producing food price stability. No longer is continues. “…Subsidized industries become this the case. With an increasing number of accustomed to subsidies and use financial small-scale farmers failing to receive and resources influence politicians adequate government support, they are and government agencies…” in an attempt rapidly falling further into debt as they to ensure their subsidies continue to be attempt to keep up with ever-changing and funded by public resources [13]. How are ever-improving agricultural technology. these corporations able encourage powerful politicians to ensure their interests via Today’s small-scale farmers are forced to subsidies are funded annually? compete with mega corporations like Monsanto and Cargill, yet they receive a Figure 4 [14] greatly emphasizes this fraction of government support. According to corrupt relationship for the very individuals Forbes, as of May 2015, Monsanto, an who are elected to represent the people are agribusiness, is valued at $55.7 billion now disproportionally representing the interests of powerfully interest groups.

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Figure 4 [14] offers insight on the amount of require it. Rather, they are going to dollars per annum is spent lobbying on corporations, who use their financial might behalf of agribusiness. Agribusiness has to corrupt the political process. Thereby spent $97,596,480 on lobbying efforts since ensuring they continue to receive taxpayer 1998 (Open Secrets, 2015). The problem is support despite publishing record levels of not the volume of money spent, but where profit. It is quite evident subsidies not only the money was spent. Lobby groups often no longer serve their intended purpose, but contribute to politicians’ campaigns and they are distributed to those who are their financial support is often counted on undeserving and do not desperately require and relied upon. As a result, politicians have them. The long-term effects of agricultural become accustomed to receiving financial subsidies have been quite detrimental and support from these groups and in return costly. they keep their interests in mind if elected to High-stakes Farming in 2015 Congress. It would be illogical for a politician who's campaign receives immense Various examples support the hypothesis financial support from an agribusiness like that agricultural subsidies have become an Monsanto to propose eliminating outdated, flawed economic policy that agricultural subsidies once in power for they continues to endure support despite failing would lose an asset in Monsanto. to strengthen the U.S. economy. It remains Conversely, Monsanto’s investment in difficult to comprehend how farmers, or politicians campaign has yielded beneficial corporations have been able to resist change results for they continue to receive public despite pressure being placed on politicians funds annually despite being financially and lawmakers for reform. As previously sound. Open Secrets [15], a centre for mentioned, agricultural subsidies were born responsive politics, found agribusiness out of necessity and once served a nobel contributed over $37 million dollars to purpose. Their birth was justified and Republican’s and $13 million dollars to supported by popular economic theory that Democrats in Congress in 2014. This was prevalent at the time. Today, the same highlights the very issue that has plagued cannot be said. the effectiveness of agricultural subsidies. The result of these massive financial Farmers and mega-corporations responsible contributions can be a corrupt political for producing the food Americans and process, resistance to reform and inefficient countless individuals around the world eat use of public funds [13]. All of which can be have become path dependent on agricultural witnessed as a result of agricultural subsidies. In order to thoroughly understand subsidies. No longer are these subsidies the impact of institutions on the American going to small-scale farmers, those who truly economy, new institutional economic theory

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Available online at www.managementjournal.info must be considered. This theory is based off who do not require. The Economist [18] an ideology found within neo-classical estimates agricultural subsidies cost economy theory which supports, “…the American taxpayers $20 billion dollars assumption of self-seeking individuals annually, irregardless of the alterations attempting to maximize an objective made in the 2013 Farm Bill. Notable farm- function subject to constraints still holds” subsidy recipients like Ted Turner, Jon Bon [16]. Under this theory, institutions play a Jovi, and Bruce Springsteen are the key role in understanding the economy and recipients of agricultural subsidies despite its strength within a country. Actors who being multimillionaires [18]. Additionally, control institutions within agribusiness, like the U.S. government paid $3 million to 2,300 Hugh Grant- Chief Executive Officer of farmers who failed to grow crops and Monsanto, seek to maximize their function. between 2008 and 2012 paid $10.6 million to They pursue their own self-interests in order farmers who have been deceased for over a maximize economic rewards. Monsanto, like year [18]. The misuse of public funds other , have become extends beyond going to the wrong dependent upon public funds. Unfortunately, individuals. Agricultural subsidies have these corporations, through the support of become such a flawed policy measure that politician’s campaigns, are pushing public funds are being sent to those who are lawmakers to create, or in this case not actively farming, or alive. Unfortunately, maintain, policy that serves their best this information alone is not enough to interests. As a result, these institutions persuade politicians and lawmakers to resist change or alteration that would completely eliminate agricultural subsidies potentially eliminate or reduce the very and use public funds more appropriately. money they benefit from. When considering Rather, under the new Farm Bill, direct the importance of institutions, one is easily payments to farmers have been eliminated, able to identify why corporations invest but public investment in agricultural heavily on lobby groups or donating to subsidies has increased. “The projected cost political campaigns. Institutions seek to of the Senate proposal is $955 billion over 10 remain economically viable for their end goal years, a significant increase from the 2008 is profits. The focus on institutions can aid farm bill, which was expected to spend $604 in our understanding of why agricultural billion over 10 years”. It is evident inefficient subsides remain, regardless of calls for use of public funds is expected to continue reform by the public and media. despite substantial evidence having been Unfortunately for powerful institutions, presented throughout this paper suggesting change is on the horizon; however, this anything but an increase in funding. change will not be significant in nature whereby government-corporate path Today,…the nation's 1.7 million farmers dependency is broken. must choose between two new programs intended to protect them against unexpected The landscape of agricultural subsidies has losses. One would insure their income in bad already begun to experience change; despite harvest years. The other would compensate the immense financial support politicians them if crop prices fell. It's a high-stakes receive through lobbyists. A Bloomberg decision that requires them to predict Business report, U.S. farm profits reached a whether they're at greater risk from acts of record $129 billion in 2014 [17]. It was at God or acts of man. this point lawmakers decided to eliminate subsidies. However, the term eliminate has It is apparent the very farmers that been used incorrectly in this instance. agricultural subsidies were initially Agricultural subsidies are simply being intended for have once again been pushed to altered. A Farm Bill passed by the Senate in the margins in favour of large corporations. 2013 simply resulted in farmers no longer Agricultural risk is now being considered by receiving direct payments from the the few who remain farmers. Government government; however, substantial amounts initiatives such as this are yet another of financial support continue to flow to those example of individual, small-scale farmers

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Available online at www.managementjournal.info essentially being forced to opt for other theory at the time, government intervention forms of work while corporations in the form of spending public funds to simultaneously purchase their land and ensure farmers were paid a sufficient income machinery. This process only increases their and promote price stability of crops was size, might and control over farming required. Unfortunately, this economic practices in the U.S. “In 2012 alone, the U.S. policy has continued to be funded, absorbing government spent an estimated $3.2 billion immense public funds despite contributing on dairy subsidies”. Surely there is a more marginally the to U.S. economy. A once efficient way to spend $3.2 billion dollars suitable and appropriate economic policy has worth of public funds that would stimulate become flawed due to the vicious and strengthen the U.S. economy. According relationship that has developed between to the Organization for Economic Co- politicians and corporations who have operation and Development, the U.S.A’s altered the landscape of farming in America. general government debt is 125% of their No longer do small-scale farmers, the ones GDP as of 2012 (OECD, 2015). Rather than agricultural subsidies were intended for, continuing to fund a flawed, outdated policy receiving or claiming them. Rather, initiative, the government must begin corporations who have industrialized the spending public funds more appropriately. farming practice receive immense financial support despite record profits. Agricultural Despite eliminating direct payments to subsidies continue to be funded for farmers, large-scale farmers continue to politicians and corporate figures have receive public funds. Has the increased developed a path dependency on funds begin investment strengthened the U.S. economy? received by each party respectively. These It is quite evident this has not been the case. institutions resist change for there is little Recall figure one; agriculture remains to incentive for either party to alter their account for a mere 1% of the country’s GDP actions. Farming accounts for far too little of annually (USDA, 2013). Unfortunately, the country’s GDP to be accounting for such agricultural subsidies continue to flow due to exorbitant amount of public funds. Surely the heavily politicized nature of farming in these public funds should be utilized more the U.S.A [19-23]. efficiently and effectively rather than continuing being used to fund a flawed Conclusions economic policy that is only benefiting two Agricultural subsidies were born out of party’s: politicians and corporations. necessity; influenced by popular economic References 1. Riedl BM (2007) How Farm Subsidies Harm Taxpayers, Energy and Natural Resources, 126. Retrieved October 18, Consumers, and Farmers, Too. The Heritage Foundation, 2015, from http://www.ncpa.org/pub/ib126 2042, p.1-15. Retrieved October 18, 2015, from http://www.heritage.org/research/reports/2007/06/how- 6. Sumner DA (2008) Agricultural Subsidy Programs. farm-subsidies-harm-taxpayersconsumers-and-farmers-too Retrieved December 2, 2015, from http://www.econlib.org/library/Enc/AgriculturalSubsidyPro 2. Arnold W (2007) Surviving Without Subsidies. The New grams.html York Times. Retrieved December 2, 2015, from http://www.nytimes.com/2007/08/02/business/worldbusines s/02farm.html?pagewanted=all&_r=0 7. Folsom B (2006) The Origin of American Farm Subsidies. 3. The Banker (2006) Protectionists on the Wrong Side of Retrieved December 2, 2015, from History - Like The Machine - Breaking Luddites of the http://fee.org/files/doclib/0604folsom.pdf Industrial Revolution, Those Behind the New Wave of Are Posing A Great Threat to Progress and 8. Spittler J, Ross R, Block W (2011) The Economic Impact of Economic Growth, Says Donald L Evans. The Banker. Agricultural Subsidies in the United States of America. Retrieved December 2, 2015, from the Ryerson University The Journal of Social, Political, and Economic Studies, Library Archives. 36(3):301-317. Retrieved December 2, 2015, from Ryerson University Library Archives. 4. Sackrey C, Schneider G, Knodler J (2005) Introduction to Political Economy. 4th Ed. Boston: Dollars & Sense. 9. McKenna B (2013) Taxpayers Oblivious To The Cost of Chapter 5. John Maynard Keynes and The Turbulent Birth Farm Subsidies. The Globe and Mail. Retrieved December of Macroeconomics. 2, 2015, from http://www.theglobeandmail.com/report-on- business/taxpayers-oblivious-to-the-cost-of-farm- 5. Ostria M (2013) How U.S. Agricultural Subsidies Harm the subsidies/article13055078/ Environment, Taxpayers and the Poor. Issue Briefs:

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Available online at www.managementjournal.info 10. United States Department of Agriculture. (2015). What 133. Retrieved December 2, 2015, from the Ryerson is Agriculture’s Share of the Overall U.S. Economy? University Library and Archives. Retrieved December 2, 2015, from http://www.ers.usda.gov/data-products/chart- 17. Bjerga A (2015) Betting the Farm. Bloomberg Business. gallery/detail.aspx?chartId=40037 Retrieved December 2,2015, from http://www.bloomberg.com/graphics/2015-farm-bill/ 11. Kennell D (2007) Factory Farming: A Cruel and Destructive Industry. People's Weekly World, 10-11. 18. Coburn T (2015) Farm Subsidies: Milking Taxpayers. Retrieved December 2, 2015, from University of The Economist. Western Library Database. 19. Forbes (2015) Monsanto. Retrieved December 2, 2015, 12. Snyder M (2014). Big Corporations Have an from http://www.forbes.com/companies/monsanto/ Overwhelming Amount of Power Over Our Food Supply. Retrieved December 2, 2015, from 20. Grey Clark, Shih, and Associates (2010) Introduction http://www.globalresearch.ca/big-corporations-have-an- and Summary. In Farming the Mailbox: U.S. Federal overwhelming-amount-of-power-over-our-food- and State Subsidies to Agriculture (pp. 1-32). Ottawa. supply/5391615 21. OECD (2015) General Government Debt (Indicator). 13. Abboushi S (2007) Agricultural Subsidies-What Are Retrieved December 2, 2015 from, doi: They and Who Receives Them? Competition Forum, 10.1787/a0528cc2-en 5(1):58-65. Retrieved December 2, 2015, from the Ryerson University Library and Archives. 22. United States Bureau of Economic Analysis. (2015). Government Subsidies: Federal: Agriculture. Federal 14. OpenSecrets (2015) Agribusiness: Sector Profile, 2015. Reserve Economic Data. Retrieved December 2, 2015, Retrieved December 2, 2015, from, from https:// http://www.opensecrets.org/lobby/indus.php?id=A research.stlouisfed.org/fred2/series/L312041A027N BEA 15. Open Secrets (2014) Agribusiness: Money to Congress, 2014. Retrieved December 2, 2015, 23. World Bank. (2014). Data: United States. Retrieved from,http://www.opensecrets.org/industries/summary.p December 2, 2015 from hp?ind=A&recipdetail=A&sortorder=U&mem=Y&cycle http://data.worldbank.org/country/united-states =2014

16. Kherallah M, Kirsten JF (2002) The New Institutional Economics: Applications forAgricultural Policy Research in Developing Countries. Agrekon, 41(2):110-

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