The target date for a new trade deal between Canada and the United States is a little over a week away, but one issue continues to be a sticking point between both nations: Canada’s supply management.
Supply management, which Canada uses in the dairy, poultry and egg sectors, has been a frequent target of criticism from U.S. President Donald Trump throughout his threats of tariffs and claims that Canada is “ripping us off.”
Last month, while demanding Canada repeal its digital services tax, Trump said Canada was “a very difficult Country to TRADE with,” claiming on his social media platform Truth Social that the country charges “tariffs” of up to 400 per cent on dairy products.
Canada uses a quota system that allows a set amount of some foreign dairy products into the country, and high tariffs only apply if countries try to exceed that allowed quota coming into Canada.
Canada’s supply management system, which dates back to the 1970s, has restricted foreign access to the Canadian dairy market in order to protect domestic producers and set quality standards for products.
Prime Minister Mark Carney vowed in the Liberal election platform that he will “keep Canada’s supply management off the table in any negotiations with the U.S.”
So how does it work?
The Canada-United States-Mexico Agreement (CUSMA) — which Trump re-negotiated to replace the North American Free Trade Agreement (NAFTA) during his first term — narrowly expanded U.S. access to Canada’s dairy market, which is protected under supply management rules.
The rules, established in the 1970s, set production quotas for Canadian farmers, guarantee minimum prices, and maintain import and quality controls.
“Producers have a licence to produce that’s determined by their quota. Producers will only produce as much as the quota says they are allowed to produce or in fact to sell,” said Sven Anders, a resource economist at the University of Alberta.
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Under CUSMA, the U.S. gets access to less than five per cent of the market.
But the U.S. has launched multiple disputes claiming Canada is intentionally bottlenecking those U.S. imports through tariff rate quotas, which put limits on how many exporters qualify for the cheaper duties.
The issue of supply management for farmers might end up being an issue both sides are unwilling to move on. For one, most Canadian politicians are staunchly in support of the policy.
“We saw during the leaders’ debate that all of the leaders, specifically in French, said that supply management was a red line in any negotiations with the Trump administration over tariffs,” said Moshe Lander, an economist at Concordia University.
“It seems that they were willing to even accept tariffs and damage to the Canadian economy rather than put dairy and supply management on the table.”
The policy is aimed at protecting Canadian dairy farmers from the much larger American dairy industry and keeping prices and supplies stable by controlling the amount of product available.
Anders said Canadian politicians are reluctant to alienate dairy farmers.
“They have a lot of political clout. So, if I was a politician in Ontario or Quebec, among my constituents would be many dairy farmers. I certainly would want to fight for them,” he said.
That political influence is particularly strong in Quebec, one expert said.
“In 17 ridings provincially in Quebec, people under supply management are strong enough to change the outcome of the election,” said Vincent Geloso, senior economist at the Montreal Economic Institute.
“Having influence over 17 ridings makes you a very powerful interest group.”
As Canada’s premiers were meeting for a three-day summit in Ontario, Quebec Premier François Legault said supply management was a hard line in the U.S. trade negotiations for him.
“There’s no question about negotiating the supply management for dairy and other products,” Legault told reporters.
Lander said supporters of Canada’s dairy industry see the policy as necessary to protect them from the much larger American dairy industry.
“Wisconsin alone produces more milk than Canada consumes in a year,” he said.
He said small Canadian dairy farms would be unable to withstand the pressure of open competition from the U.S.
“These farms would have to merge their way up into these mega farms like you see in Wisconsin or in Minnesota to try and remain competitive. That would push a lot of farmers off their traditional land,” he said.
Dairy Farmers of Canada declined Global’s request for comment.
However, Trump and the Republicans have their own political calculus in pushing Canada on supply management, he said.
“In the midterm elections, which are next year, maintaining Wisconsin is going to be very important for the Republicans if they want to maintain control of the House (of Representatives). If you vocally support farmers, this is one way to maybe keep that base solidified,” he said.
One prominent Canadian voice who is opposed to the present system of supply management is Alberta Premier Danielle Smith, who said recently that she was considering “creating our own Alberta version of supply and management, maybe as a pathway to a market system.”
“We do not get our share of quota, I think we have 12 per cent of the population and we only get seven per cent of the quota,” she told reporters last week.
One consequence of supply management is that Canadians end up paying more for dairy products, Anders said.
“There’s plenty of research that says or that has documented that an average Canadian household pays several hundred dollars more in food in dairy product cost on an annual basis just because of supply management,” he said.
However, the same system has also been credited with helping Canadian consumers avoid the price shocks seen by U.S. consumers over the past year, as egg prices south of the border soared.
Trump’s criticisms aren’t historically abnormal for U.S. presidents, either.
“Biden and Obama both had objections to it and voiced it,” Lander said.
“The more I say I dislike it, and the more you insist you’re not going to remove it, then the more that I can say I want my way on these other things. It could be that he (Trump) just sees it as a tactic, where the Democratic presidents who had opposed it in the past merely just saw it as an annoyance.”
— with files from Global’s Sean Boynton and Touria Izri
