Supply management was meant to save Canadian dairy

Now it is holding it back

Donald Trump’s latest tariff threat should not become another excuse to avoid reforming supply management. His response is excessive and disruptive, but that does not mean Canada’s dairy system is beyond criticism. Ottawa will undoubtedly denounce Trump and portray any discussion of reform as capitulation. That would be a mistake.

On Aug. 19, the United States is expected to impose a 50 per cent tariff on selected Canadian dairy products. The tariffs do not cover all dairy exports. Cheese, butter, yogurt and conventional milk are generally excluded. They primarily target ingredients such as whey, milk powders, lactose, casein and milk-protein concentrates.

Canada exports approximately $360 million to $380 million in dairy products to the U.S. annually. Between $120 million and $140 million, roughly one-third, could be exposed. Technically, American importers pay the tariff. In reality, they will demand lower prices from Canadian suppliers. Our processors will absorb part of the cost, some shipments will be redirected, and others will become uncompetitive.

Washington also argues that Canada administers cheese-import quotas differently under the Canada-United States-Mexico Agreement (CUSMA) than under its agreement with the European Union. European cheese can be imported directly by retailers, while retailers are generally excluded from comparable CUSMA allocations.

For decades, supply management has been treated as a sacred political object rather than an economic policy capable of evolving. Every criticism is interpreted as an attack on farmers. It is not. Dairy farmers are not the problem. The governance structure is. It has become rigid, defensive and too comfortable managing decline.

When supply management began in the early 1970s, Canada had well over 42,000 dairy farms. Some historical estimates put the number much higher. By 2024, only 9,256 remained. If consolidation accelerates, falling toward 5,000 farms within five years is no longer unthinkable.

Supply management did not cause every closure. Technology, succession challenges and economies of scale have transformed dairy farming worldwide. However, these numbers undermine claims that preserving the system unchanged will protect family farms. The status quo is clearly not preserving them.

Canada needs a 15-year plan to make supply management stronger and dairy more competitive. It should not be a rushed concession drafted in Washington, but a Canadian strategy developed on our terms.

The first objective should be lowering costs. Feed, energy, transportation, packaging, financing, regulation and quota acquisition all affect competitiveness. Administered pricing cannot simply pass every cost increase on to processors and consumers. It must also encourage productivity, investment and innovation.

Quota should become more flexible across provincial boundaries. Canada cannot claim to have one national economy while dairy production remains fragmented by provincial structures. Farmers and processors should be able to pursue opportunities wherever demand and investment exist.

Canada should also create a separate, voluntary growth stream for innovative dairy ingredients and export production. It must be transparently priced, compliant with our trade obligations and free of domestic cross-subsidization. Farmers who prefer the domestic market could remain there, while others pursue international growth.

Prime Minister Mark Carney has made trade diversification a central objective of his government. Dairy gives him an opportunity to turn that ambition into something tangible. Canada has high-quality milk, respected food-safety standards and expertise in proteins and nutritional ingredients. Yet our system remains overwhelmingly designed to serve a protected domestic market.

Carney should make dairy part of Canada’s diversification strategy alongside energy, critical minerals and advanced manufacturing. Trade missions, export financing and market-access negotiations should support Canadian dairy products in Asia, the Middle East, Africa and Latin America.

Expanding beyond the U.S. would reduce our exposure to American political pressure while creating opportunities for farmers and processors. A supply-management system with more markets, lower costs and greater processing capacity would be stronger, not weaker. Diversification will take time, which is precisely why Canada needs a 15-year plan rather than another temporary program or compensation package.

Canada must also confront the erosion of domestic control over dairy processing. France-based Lactalis recently agreed to acquire Agropur’s fine-cheese division, including the OKA, Monsieur Gustav and L’Extra brands and two Quebec plants. Canada’s only major infant-formula facility, in Kingston, is controlled by China-based Feihe International. The Fairlife facility producing ultra-filtered, lactose-free milk in Peterborough is owned by Coca-Cola.

These investments create jobs and purchase Canadian milk. Foreign investment is not inherently undesirable, but dairy sovereignty cannot be measured solely by where cows are milked. It also matters who controls processing facilities, brands, intellectual property, supply contracts and investment decisions.

Canada protects raw milk production intensely while allowing foreign interests to capture many of the highest-value opportunities further along the supply chain. We protect the commodity but surrender too much of the innovation, manufacturing and brand value. That is not a coherent dairy strategy. A 15-year plan should encourage Canadian co-operatives, processors, entrepreneurs and institutional investors to develop strategic processing assets. Competition and foreign-investment reviews should consider food-system resilience and domestic manufacturing capacity, not merely the immediate value of a transaction.

Ottawa should also harmonize dairy import-quota rules across trade agreements. If retailers can access European cheese quotas, giving retailers and distributors comparable access under CUSMA could address Washington’s specific complaint without dismantling supply management. None of this requires abolishing the system overnight. Farmers invested under rules created and defended by governments. Abruptly destroying quota values would be reckless. Reform must be gradual, transparent and supported by reasonable transition measures.

Sovereignty does not mean rejecting reform whenever Washington complains. It means recognizing our weaknesses and fixing them before another country forces the issue. The choice is not between surrendering to Trump and defending the status quo. It is between reform designed in Canada and reform eventually imposed from outside. Better to change on Canadian terms than to be dictated to by Donald Trump.

Dr. Sylvain Charlebois is senior director of the Agri-Food Analytics Lab at Dalhousie University, co-host of The Food Professor Podcast and visiting scholar at McGill University.