Content provided by Paul Vaaler of the Carlson School
Spring semester classes are winding down and both the Carlson School and Law School are gearing up for final exams and then graduation in two weeks.  I’ve already written up my final exams and I can truly say that is is better to give than to receive them.  While my students are on the receiving end of those exams, let me take a moment to chat about some current local, national and international business issue:

Locally, it’s hard to think that Minnesota and Canada could ever have an economic dispute –many of our northern neighbors think Minnesota is the lost (but recoverable) 11th province– but maybe there’s a dispute in the making…over milk.  Here is where you can read more about the possible trade war over milk:  Minnesota is the 6th leading milk producer in the US –California and Wisconsin are #1 and #2.  It ends up that Minnesota dairy farmers are having trouble exporting that milk to Canada because of a loophole in the North American Free Trade Agreement (NAFTA), which is all about the free flow of goods produced by the lowest cost, highest quality producers whether they be in Mexico, the US or the Great White North. But milk is an exception. Canada is permitted to set tariffs and quotas to protect domestic farmers and drive up dairy costs for Canadian households.  That shut out Minnesota dairy farmers from many but not all milk markets up north.  It ends up that a form of milk called ultra-filtered milk –milk passed through a filter that separates proteins from the skim– isn’t under the exception.  So Minnesota farmers can and have shipped several million gallons at low prices to Canada for decades.  Until earlier this year, when a glut of Canadian milk led Ottawa to drop their price supports on all sorts of milk, including UF milk.  A crash in milk prices was great for Canadian households but effectively shut out Minnesota (and Wisconsin and California) UF milk producers from further exports.  That means a temporary drop in Minnesota farm income, angry farmers, and now motivated Minnesota Congressman who listen to those farmers and are now demanding a re-negotiation of unfair terms of NAFTA milk trade.  Canada should take note, especially with US President Trump frequently characterizing NAFTA as one-sided against US producers.  My own view is that any loss due to the shift in UF milk markets is temporary.  Minnesota dairy farmers are an entrepreneurial lot.  Give them a couple of months and they’ll be selling that UF milk to consumers in Maple Grove, Missouri, and Mexico.  Even with the milk exception, NAFTA has been a big plus for Minnesota agriculture and agribusiness. Let’s not over-milk this milk trade spat.

Nationally, let’s celebrate a two billion dollar plus profits made by a government-sponsored enterprise (GSE) and paid to the government.  Huh?  Read this article to make a little more sense of it all:  The Federal Home Loan Mortgage Corporation or Freddie Mac is a GSE created in 1970 to help make credit for home loans easier to obtain.  Freddie Mac does this by buying, guaranteeing, aOind re-packaging home mortgage loans to be used as collateral when selling mortgage-backed securities to investors.  Continued low interest rates, lower home mortgage delinquencies, and generally strong economy has meant that business was very good last quarter.  Freddie Mac was able to pay a $2.21 billion in income to the US Treasury,  Last year at this time Freddie Mac had lost more than $350 million –quite a turn-around.  But why isn’t Freddie Mac’s dividend going to the private shareholders that actually own this GSE?  Here’s why:  the housing crisis and great recession of 2008.  Then, Freddie Mac faced hundreds of billions in losses due to the imploding housing market.  It went into a conservatorship with the US federal government essentially bailing out the GSE in return for a guarantee that Freddie Mac would pay back any capital injected and a warrant letting the feds buy up to 80% of Freddie Mac’s stock –then worthless.  Today’s dividend is essentially going to the the US Treasury –that’s us– to make good on that 2008 guarantee or under the threat of a warranty exercise or a little of both.  So congrats to Freddie Mac, the US Treasury and to us, the taxpayers.  Let’s do it again next quarter.
Nationally, what do, Campbell Soup, Home Depot and Hershey’s have in common?  It ends up that they have four of the most-loved brands in the US.  Read more about it here:  Washington, DC-based Morning Consult conducted online surveys among a national sample adults. Between 10,000 and 35,000 adults rated 500 companies and their brands from January through April 2017.  Respondents were asked to indicate whether they had a favorable or unfavorable view of each company they ranked, and the final percentages used in the Spring 2017 rankings reflect the net favorability score (favorable ratings subtracted by unfavorable ratings). was number one overall with a net favorability ranking of 76%.  Campbell Soup, Home Depot and Hershey’s were also in the 70’s.  What about at the low end?  Oil companies scored only as high as 30% –that was Shell Oil.  Exxon was only 14%.  Utilities were even lower.  Consolidated Edison or just Con Ed, the big electric utility in the Northeast got a very lowly 10% net favorability rating.  Companies spend tens of millions on advertising and promotion to send what they hope to be a favorable message to consumers about the goods and services they sell.  That message is very favorable for, not so favorable for Exxon and Con Ed. Funny, I didn’t see any data on the favorability of the Trump brand.  Nate Silver’s had the President’s approval rating at 42%, a record low for a US president after only 100 days in office. Maybe he should hang out at Con Ed where he’ll look pretty good in comparison.



Nationally and Internationally, here’s a familiar story…in reverse.  A US company that can’t find enough workers able to do a computer software program development job skillfully yet also cheaply, ship that business to India where skilled-enough, much cheaper, and more plentiful software engineers are available in profusion.  Today (Tuesday), the head of India’s software development giant, Infosys, said they are going to create 10,000 jobs back in the US –outsourcing in reverse.  Read about the announcement here:  Infosys President Ravi Kumar told reporters that he can’t find as many good, cheap, willing programmers in India –huh?  And Kumar said that US clients want software support staff physically nearby, not merely on the other end of a phone that could be in Mankato or Mumbai.  Where’s the first location for the Infosys job training center in the US:  Indiana, Vice President Pence’s home state.  This isn’t lost on observers, who see the Infosys announcement as a play to head off moves by the Trump Administration to curtail the H1-B visa program that permits skilled foreign workers to enter the US and join US companies.  Of course, announcements are only that –words.  Japan-based Softbank has promised to create thousands of jobs in the US.  Now Infosys.  Let’s see if any really materialize in Indiana or other politically convenient locations.
Have a great week!

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