Canada's dairy industry policy is among the most politically sacrosanct in the country, and it has long been a thorn in the side of Donald Trump. Now, the supply management system is back in the spotlight after the US president singled it out as one of three main irritants used to justify a 50% tariff on $20bn worth of Canadian goods imported to the US, set to take effect in August.
Trump argues that the system, which involves production quotas, set pricing, and import quotas on dairy, eggs, and poultry, is 'unreasonable' to American farmers who want to sell their products north of the border. Canadian politicians now face a choice: stand firm on the popular supply management system or risk public ire and the wrath of a politically powerful dairy industry by attempting to resolve the issue with Trump.
So far, they have indicated that dairy is a non-starter. Quebec Premier Christine Fréchette, whose province is home to Canada's largest dairy industry, said on Tuesday that supply management was non-negotiable. Last week, US-Canada Trade Minister Dominic LeBlanc told the BBC that the system 'is a cornerstone of Canada's economy and our rural communities' that 'ensures that Canadians have access to high-quality dairy products made by Canadian dairy farmers'.
Dairy farmers have also staged protests—complete with tractors and cattle on Parliament Hill—when faced with possible concessions in trade talks. 'It is the most powerful political lobby in the country that stretches across all of the major political parties,' said David Clement, a Canadian policy director at the international advocacy group Consumer Choice Center.
Canada's supply management system has been in place since the early 1970s and has endured despite other Commonwealth nations like Australia and New Zealand phasing out similar policies. Farmers hold production quotas that limit how much dairy they can produce. Prices are then set by marketing boards in each province, providing farmers with predictable income and ensuring a consistent domestic supply.
Currently, US producers have tariff-free access to only 3.5% of Canada's market, even as the country is among the top importers of US dairy, buying $1.3bn worth of products in 2025, according to USDA data. American farmers have long called for greater market access, in part due to record-high dairy production in the US that exceeds domestic consumption.
Supply management has not only frustrated Trump. The previous Biden administration twice challenged Canada's dairy quota practices under the USMCA. In 2024, the UK walked away from trade talks over disagreement on tariff-free access for British cheese producers. The OECD has also criticized the system for distorting production and trade.
Even some Canadian economists and pundits have called for its dismantlement or reform. 'Kill supply management,' Calgary journalist Jen Gerson argued in a column, calling it 'anachronistic' and blaming it for driving up food prices. Clement wrote that the Trump administration 'has a point' and that the system artificially inflates prices of staples like dairy and eggs—an issue Canadians should note given the cost-of-living crisis.
The most recent data shows Canadians paid an average of C$3.19 ($2.26) for 1L of milk in May, while Americans paid C$1.95. Those calling for an end to the system are in the minority, with around 77% of Canadians supporting its retention, according to polls, citing protection of local farmers and high-quality dairy products.
David Wiens, a third-generation dairy farmer from Manitoba and president of Dairy Farmers of Canada, argues the framework has contributed to steady prices while protecting 'food sovereignty'. He noted that US egg prices skyrocketed after a bird flu outbreak, and supply management helped shield Canadians from similar spikes.
Opponents attribute public support to a lack of awareness of complex trade policy and say it has become politically risky to propose reforms. Changing the system would likely cost the governing Liberals seats in parliament, said Ryan Cardwell, a professor at the University of Manitoba. It would also be financially costly, with compensation packages potentially reaching billions of dollars.
When phasing out its supply management system, Australia used a temporary milk levy on consumers to fund the transition, while the EU gradually increased quotas by 1% annually before abolishing them in 2015. But in Canada, Cardwell contends that supply management is likely 'not going anywhere'.
Source: www.bbc.co.uk