U.S. organizations argue that Canada has hidden behind supply management to deny American farmers access to a sliver of the Canadian dairy market promised under the Free Trade Agreement among Canada, the U.S. and Mexico.
U.S. President Donald Trump may be having a cow over Canadian dairy, but it’s not the first time the U.S. government has complained about the industry’s protectionist policies.
In 2018, during his first term as president, the dairy industry was a target for an angry Trump, who railed against Canada for not allowing foreign competition in.
And he’s not far wrong, according to industry experts.
The reality is that Canada still uses a protectionist market system that guarantees farmers are paid a set price for all their milk production and charges high tariffs — some higher than what Trump is threatening — on dairy imports.
Canada has what’s called a supply management system, which was created more than 50 years ago as a national framework to protect the domestic dairy industry as well as eggs and poultry products.
It does so by providing stable prices, reducing risk for farmers and offering predictability for consumers, said Michael von Massow, a food agriculture and resource economics professor at the University of Guelph.
But U.S. organizations argue that Canada has hidden behind supply management to deny American farmers access to a 2.86 per cent sliver of the Canadian dairy market promised under the Free Trade Agreement among Canada, the U.S. and Mexico, or CUSMA.
CUSMA doesn’t officially end until 2036 but the agreement is up for review in June of next year, when all three countries can ask for modifications to the existing rules or propose new measures.
The U.S. said it has been unable to access the market share it was promised because the Canadian companies given the go ahead under CUSMA to import U.S. products didn’t do so because they didn’t want the competition, according to Jaime Castaneda, executive vice-president of policy development and strategy for the National Milk Producers Federation and the U.S. Dairy Export Council.
“They gave (import permits) to the Saputos of the world and everyone else who produced (dairy products) in Canada instead of giving it to retailers, distributors, pizza chains,” said Castaneda, referring to the Montreal-based company that makes diary products and cheese.
“They gave (permits) to those that actually are competing with the product,” he said.
The complaint could be a bargaining chip for the U.S., with Castaneda’s organizations pushing hard to reopen trade negotiations to get access to the Canadian market.
“We don’t believe that today we should actually impose tariffs before trying very hard to negotiate a new deal,” said Castaneda, “or at least to actually have the Canadian government comply with their own commitments.
“If the Canadian government cannot see how wrong they are when it comes to dairy — if we go about trying everything — then obviously the president has the right to retaliate,” said Castaneda.
Trump, who has complained that Canada has been treating U.S. dairy farmers unfairly, threatened to impose a 250 per cent tariff on Canadian dairy imports earlier this month.
Canada is a market the U.S. dairy industry desperately wants access to despite the country’s relatively small size.
“It doesn’t matter the size of the market,” said Castaneda. “It matters that your consumers have the ability to have access to products from other countries.”
Meanwhile, Canada exports a small amount of dairy products to the U.S. — $293.3 million in 2023 compared with more than $1 billion in U.S. dairy imports that came here — so it’s unclear what the Trump tariffs would achieve.
But if Trump is successful at reopening negotiations, it could mean more concessions for Canadian dairy farmers and a rethink of the supply management system, said Charlebois, who said the Canadian government has stepped in to subsidize dairy farmers each time trade concessions have been made.
“I do think that there’ll be more concessions around market access, but it will end up costing taxpayers more money,” said Charlebois. He believes the supply management system needs to be reformed while reducing tariffs on dairy imports over a 20-year-period to create a more competitive industry.
“You can’t really continue to make concessions while writing cheques to farmers,” said Charlebois. “It’s a bit ridiculous.”
When Canada’s supply management system was first implemented in 1970, dairy farmers paid provincial marketing boards a quota per cow, a figure based on the amount of milk and butterfat a cow should be producing in a year, said Charlebois.
In turn, the provincial dairy board bought all of the milk produced by farmers in the province, paying a price set by the Canadian Dairy Commission each year based on average production costs across the country.
The system still works the same way today, but a quota for a single cow is now worth anywhere from $26,000 to $32,000 each, depending on the province, making it very expensive for anyone to enter the dairy industry unless they’re born into it.
“You’re never going to meet a dairy farmer in Canada who’s actually against supply management, because all of them have become millionaires,” said Charlebois. “And they do very well under the regime.”
Dairy Farmers of Canada, which represents Canadian dairy producers, had no one available to comment for this story.
Nearly every country that had supply management has gotten rid of it, said Charlebois, moving toward a free-market dairy system where prices are determined by supply and demand, although most jurisdictions prop up the dairy industry using subsidies or other financial supports.
Without some protection, small dairy farms in Canada’s east that number less than 100 cows could disappear because they would be unable to compete on price with large American farmers who have hundreds, or even thousands, of cows, according to Charlebois. Dairy farms in Western Canada are larger on average.
“I believe we need some sort of protection,” said John Van Dyk, a farmer in Stratford, Ont., who has 120 dairy cattle. If “we have completely free trade between our countries … if that were to happen, I imagine 40 per cent of Canada’s dairy farmers would be gone because we can’t compete with the U.S. on the production of milk mainly due to the size of farms.”
Expansion isn’t an option, he said, because land values are 10 times what they were when he started farming in 1995.
Van Dyk believes that it won’t be up to Trump, or any politician from another country, to decide the future of Canada’s supply management system.
“From the consumer’s point, if they don’t believe that our system is providing a benefit, if they don’t believe that our dairy is any better than the U.S. and they believe that they can get a lower price,” said Van Dyk, “then they might say that’s just the cost of trade and they might sacrifice us.”
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