By Canadian Press

Amid U.S. tariff threats, a fight may be brewing over Canadian supply management

Feb 5, 2025 | 12:24 PM

MONTREAL — The federal government and the Canadian dairy industry are vowing to protect the country’s supply management system in the face of threats from the United States.

But some observers, and even some who work in the industry, say Canada will have to consider changes to the decades-old system that controls the supply of dairy products to appease a combative Trump administration.

Earlier this week, U.S. President Donald Trump voiced discontent about American access to Canadian dairy markets, which was a major sticking point in North American free-trade negotiations during his first term in office.

“Canada is very tough. They’re very, very tough to do business with, and we can’t let them take advantage of the U.S.,” he told reporters on Monday. “They don’t take our agricultural product for the most part, our milk and dairy, etc. A little bit they do, but not much. We take theirs.”

Hours later, Prime Minister Justin Trudeau announced he had reached an agreement with Trump to pause proposed 25 per cent tariffs on Canadian exports for at least 30 days, in exchange for commitments to beef up border security and fight the fentanyl trade.

But it’s unclear what will happen once that month elapses. In addition, the Canada-United States-Mexico Agreement, signed in 2018, will be up for review next year. As part of the free-trade deal, Canada agreed to allow U.S. dairy farmers access to about 3.5 per cent of the domestic market, but the U.S. has since accused Canada of violating the pact.

“We will certainly see a fight. It will be a titanic battle,” said Lawrence Herman, an international lawyer and senior fellow at the C.D. Howe Institute. “The Americans are bound to challenge supply management.”

Howard Lutnick, Trump’s pick to lead the Commerce Department, also singled out the dairy industry during his Senate confirmation hearing last week.

“Canada … treats our dairy farmers horribly. That’s got to end,” he said. “I’m going to work hard to make sure … they do much, much better in Canada than they’ve ever done before, and that is a key focus of this administration.”

On Tuesday, Foreign Affairs Minister Mélanie Joly told reporters the government will defend Canadian dairy producers. “We have always said that we would protect supply management,” she said. “The Liberal party is the party that put supply management in place, we are the ones who protected it during the last (free-trade) renegotiation, and we’ll be there to protect it.”

Canada’s system of supply management for dairy, poultry and eggs was established starting in the 1970s following a period of price volatility. It functions by setting production quotas for farmers, guaranteeing minimum prices and maintaining import controls.

Luc Boivin, general manager of Fromagerie Boivin in Quebec’s Saguenay region, said the Americans have good reason to be unhappy with some elements of the system, including a lack of transparency about how minimum prices are fixed.

“I think supply management will be protected in Canada,” he said in an interview. “But I think it will have to be modernized.”

He pointed to the fact that Canada agreed during the 2018 trade talks to scrap separate classes for certain milk ingredients that allowed producers to sell them at lower prices and made American equivalents uncompetitive.

However, U.S. officials have since claimed that Canada has effectively replaced those classes with a new one that continues to violate the principle of the trade pact. “I think this time the Americans will arrive much more prepared … at the negotiating table,” Boivin said.

Herman went further, claiming the U.S. could demand major concessions on the dairy market. “I think that there will be serious, serious pressure from the Americans for Canada to not only give American dairy exporters greater access, but to do away with supply management entirely,” he said.

Charles Langlois, president of a Quebec industry group representing dairy producers, said that as far as he’s aware, supply management is not currently on the table during tariff talks with the United States.

Concessions made during recent trade deals with the United States, the European Union and Pacific Rim nations have already opened about 10 to 12 per cent of the Canadian dairy market to other countries, he said.

“We want to ensure that our supply management system is not affected, because it ensures a stable environment for the industry, it ensures a good product for consumers and good prices,” Langlois said.

Boivin said his four-generation family business has already felt the impact of those concessions, thanks to increased competition from imported cheeses. “We are not currently growing,” he said.

In 2023, the House of Commons passed a bill tabled by the Bloc Québécois that would have protected the supply-managed dairy, egg and poultry markets from future trade concessions. The legislation had broad support from all parties, but faced pushback in the Senate and died when Trudeau prorogued Parliament last month.

Herman called the bill “appalling,” especially when Canada is facing a “crisis of major proportions” with the U.S. “It’s a reflection of the egregious hold that the dairy farmers of Canada have on politicians in Ottawa,” he said. “And ultimately, it’s about votes.”

Doing away with supply management, he said, would remove a major trade irritant and allow Canadian producers to compete internationally.

But Jodey Nurse, a faculty lecturer at the McGill Institute for the Study of Canada, said Canadian farmers would struggle to survive if supply management were scrapped. “We would be flooded with dairy products, egg products and poultry products from the United States and elsewhere,” she said. “And I do think that there’s just no way that the Canadian producers would be able to compete.”

She believes Trump’s tariff threats will strengthen Canadians’ resolve to defend the domestic dairy industry. “I think most Canadians and most people recognize that food is not just another widget,” she said. “Food is something that needs to be protected.”

This report by The Canadian Press was first published Feb. 5, 2025.

Maura Forrest, The Canadian Press