The Decibel - Dairy’s outsized political influence and the trade war

Episode Date: July 23, 2025

Earlier this month, U.S. President Donald Trump threatened to impose 35-per-cent tariffs on imports from Canada starting on Aug. 1. And when it comes to trade negotiations, Canadian dairy – and the supply management system that oversees the industry – is treated like a “sacred cow.”Trump has repeatedly aired frustrations over U.S. dairy farmers’ limited access to Canada’s market. Despite this, Ottawa has continued to make efforts to protect the industry from trade negotiations – even while Prime Minister Mark Carney makes other concessions.The Globe’s agriculture and food policy reporter, Kate Helmore, joins the show to explain how supply management works, why it makes negotiating trade deals around dairy so challenging, and just how much political sway the dairy industry has.Questions? Comments? Ideas? Email us at [e-mail]

The August 1st deadline for Canada to reach a trade deal with the U.S. is fast approaching, and a lot is at stake. Last month, U.S. President Donald Trump threatened to raise tariffs on Canadian goods to 35%. In the open letter outlining his plan, he once again took aim at a sector that has long drawn his frustration. The Canadian dairy industry. That's because our dairy market is protected by a policy called supply management. It regulates the production of certain agricultural goods and sets the price for them. The part that other countries take issue with is the regulation around import controls.

Those can make trade negotiations with the US and with other countries go a bit sour. Kate Helmore is The Globe's food policy and agricultural reporter. Kate is here to talk about how supply management works, why the dairy industry has such an outsized influence on Canadian politics, and how that's playing out in trade negotiations. I'm Irene Ghalia, guest hosting The Decibel from The Globe and Mail. Hi Kate, thanks for joining us. Hi Irene, thanks for having me on. So Kate, before we dive into the trade

drama, can you just give us a picture of how big the dairy industry is in Canada? Yeah, it's a really good question. So according to Statistics Canada, the total net farm cash receipts from dairying is about $8.8 billion. Net cash farm receipts sounds complicated, we need to know is that's revenue. Basically that's how much dairy farmers bring in. And we have about 1.375 million head of cattle in the country. And we have about 9,200 farms spread across Canada. And as far as the amount of people

that are employed in dairy, it comes to about 16,000 people on farms themselves, and then about 28,000 people in manufacturing. So we know that the way that we run our dairy market is a major point of frustration for Trump. He wants more access. He complains that Canada is keeping American farmers out. Is his characterization of the situation accurate? Trump gets a little bit right and a little bit wrong, or at least oversimplified. On the surface, yes, when it comes to dairy trade, Canada is protectionist.

There is not free trade of dairy because it crawls under something called supply management. So I'll read you a quote that he put on Truth Social. Trump said, Canada charges extraordinary terrorists to our dairy farmers up to 400%. And that is even assuming our dairy farmers even have access to sell their products to the people of Canada. Two things to note, the US can sell dairy into Canada. We have negotiated that under the 2018 USMCA. In fact, that agreement gave them 3.5% additional market share. However, unlike most of our agricultural products, they cannot sell freely into Canada. For example, cattle moves back and forward across the US-Canadian border constantly.

That is a good that is traded completely without tariffs. That is not how dairy works. And look, it's not just Trump that's had an issue with this. Other US administrations have struggled with our dairy, and it's not just the Americans that have a concern with it either. New Zealand has waged disputes over dairy and the way that we trade dairy under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or the CPTPP, which is their trade agreement. And we've also faced challenges when negotiating trade with the UK and supply management and

dairy has come up as part of those challenges. So yeah, I mean, I think that most of our trading partners actually might agree with him on this front. Like no, Canada is difficult to deal with when it comes to dairy. Okay. So it seems like there's some tension here, not just with the US, but definitely some tensions around the world. Okay. So before we get into the political machinations at work here, let's just do a

quick refresher. You mentioned the supply management system in Canada. How does that work? Yeah, the supply management sector that gets a lot of attention is dairy, but it's worth noting that there are three other industries that also supply mash and that's eggs, chicken and turkey. If we zoom out for a second, it's important to understand something about how food production works. Okay, so you have the farmer and then the next stage along the chain is the processor. So if that's dairy, the farmer is the one who's milking the cows and the processor is the one who's taking that milk, you know, making sure it's safe, processing it, putting it, selling it to retailers

who then put it on the shelves, right? Processing is capital intensive, and the margins can often be quite thin. And so what we see is consolidation on the processing side of agriculture and food production. This is true in dairy, where free major processors control a vast amount of the market share. But it's also true in non-supply managed industries, such as pork.

For example, around 70% of the pork that's processed in Quebec is done by one company. Beef, 85% of the processing in Canada is done in free plants, owned by two companies. And then grains. You know, 60 years ago, there was about 5,000 elevators across Western Canada. Now we're looking at 400. And those 400 are also still largely controlled by a handful of companies. So just sit back and imagine what it's like to be a farmer in that situation. There are numerous farmers all producing the same good,

and then you go to the processor and they say this is the price we're willing to pay and there's very little competition. You can't go somewhere else and say what so-and-so is going to offer us this. What they can say is well that farmer down the road can pay us this and that money they're offering you is lower than your cost of production. So we saw that in the 1950s and 1960s. It was a race to the bottom. So we saw that in the 1950s and 1960s, it was a race to the bottom. Farmers were going out of business. And one of the ways to deal with that at the time was argued supply management.

Supply management comes in the scene. And what that system says is we control production. We control the supply of a certain good. And in so doing, we also control the price of that good. We set the price and that price will be above the cost of production. And we will buy all of that. We will buy all of the milk in this province because it's a provincial marketing board who manages this and we will sell it to the processor.

So we will have leverage over the price. And that's how supply management worked. That whole system falls apart if the Americans can just come in and sell us a bunch of dairy. Because if we did allow free trade on these products, then the whole system will fall apart. It's based on production control. It's based on managing supply, as the word indicates. We control how much is allowed to be imported. We allow a select amount and

that select amount has to come in. If it wants to come in tariff free, it has to come in under something called a TRQ, a tariff free quota. Okay. So if the price of dairy and what we import is controlled by supply management, how does that affect Canadian consumers? So it's kind of threefold. The first effect would be on prices. So as you can imagine, the system that we currently have sets the price for milk above the cost of production, which means that you're also setting the price higher for consumers.

It's worth noting that milk, for example, or dairy product, goes through numerous stages before it gets to you in the grocery store, right? So you've got your farmer, then you've got your processor, and then you've got your retailer, and then it gets to you. There's so many different places along that chain where the price could be inflated. What we do see is that when we compare prices in Canada to prices in the US, Canadian prices for milk are on average 20% to 30% higher over the past seven years compared with US prices. A caveat, if I may, most things are cheaper in the US. It is not a perfect comparison. Does not mean that if we got rid of supply management, then there are suddenly milk prices

would be 30% lower. That's important to note. What we do see in the US though is a lot more price volatility. So sometimes their prices get as high as ours and they drop down well below ours. And that's what happens when you have a free market industry. Okay. And what about the types of dairy products that we get here? That's the other thing.

As you can imagine, without completely free trade of dairy products, we also have less variety, right? So you've got maybe a growing fine cheese market in the US and they're like getting really, really good at making this one delicious cheese perhaps. And we don't have free access to that. If that was happening in another product such as pork or in beef, we can just import that and you would have this nice selection, this nice smorgasbord of options. And critics will say that Canada has significantly less variety as a result of that.

And anyone who has been to other countries, maybe the US, but you might better tell from my accent that I'm British. Yeah, you go to the cheese section and it is like amazing. There is so many options and they are so affordable. And then here it's much more expensive. Okay. So Kate, recently, Canada passed a new law around supply management bill C202. What is that bill? And how does that affect the trade negotiations that are happening right now?

Yeah, that bill. So that bill was put through by the Bloc Oubroquois. It passed within three weeks, speedy, speedy. And basically what it says is that Canada will not give up any more market share to international trade. So in 2018, when we negotiated the USMCA, we gave the Americans 3.5% additional market share. Under Bill C-202, that wouldn't happen. They will not get any more access to the Canadian market.

And that's not just the Americans. It's for all of our trading partners. So it sounds like there's a lot of support for supply management in Canada. Yeah. Supply management is, if I may, a bit of a sacred cow as far as Canadian politics go. My colleague Jason Kirby and I took a bit of a deep dive. We wanted to figure out how powerful is this industry really? How influential is it? How important is it? No major political party is willing to consider putting this on the table. In fact, they're willing to put forward a bill that will make trade negotiations significantly

more difficult. So with dairy, Quebec and Ontario account for more than 80% of the total number of dairy farms in Canada, and Quebec has the highest number. So the classic argument is often that votes from farmers in rural Quebec writings are undecided. If we look at rural writings and other places in the country, they're typically decided, you know, conservatives, like look at Alberta, right? But in Quebec, it's undecided.

I've had experts tell me that they're not so sure that's true anymore, that maybe some of those writings are increasingly voting conservative. So we have to have that discussion about, okay, actually really how powerful are these votes? And the other caveat that's worth bringing in there as well is that the number of farms in the country and also in Quebec has steadily decreased, even if you just look at the last 10, 15 years and the number of people employed on those farms has also gone down.

That's largely a result of increased efficiencies. You used to have a human being that milked a cow by hand. Now we can do it with automated technology. You used to have, I went to a farm who had robots sweeping up the hay. We don't even need a human being to do that anymore. So if we're not employing that many people, how powerful is the dairy industry in terms of votes if there's not that many people that are actually working on the farms? The important thing to note as well is that maybe this goes beyond jobs and it goes beyond specific votes and how many people are employed and who they'll vote for. The discussion about supply management has become ideological. It's not about economic

value, it's about values. And so it's often presented as a matter of Canadian federalism. This is a very important industry to Quebec. Milk, as a share of total farm cash receipts in that province, is just shy of 25%, which means that like agricultural production in Quebec, basically a quarter of it is dairy. And if you try to come after supply management system, you are attacking Quebec's sovereignty. We'll be right back. Kate, our trade partners have repeatedly criticized Canada's supply management policy. What exactly is it that they're asking us to change? Yeah, that's a really good question.

I'm sure that our trade partners are not a big fan of our supply management system, but their demands are actually much more specific. It will often be presented as the US S or whoever, whatever nation is trying to take down supply management. If you actually get down to it, the requests are very specific and they've got a lot to do with that thing called tariff rate quotas. The tariff rate quota is what can be brought in dairy that can be brought in on supply managed goods that can be brought in without facing those 250% tariffs.

To bring in dairy into Canada, you need something called a TRQ license. And only select parties can get that TRQ license. That is processors and distributors. When we're talking about the USMCA, so that's our agreement with the Americans, but also when we talk about the CPTPP, which is our agreement with the Pacific nations.

That infuriates our trading partners because they will say, the processors aren't the ones who want our dairy, right? The people who want our dairy are the retailers and the food service companies. And under the current system, Loblaws, for example, is not allowed to bring in US cheese.

So what our trading partners will say is that you put the TRQ license as far away from the consumer as it could get to. In fact, you handed it to our competitor, which is the processor. Why would they bring in products that they already have in Canada? The other thing, the problem with the TRQ that they'll take issue with, and this gets a little technical for a second, bear with me, we allocate TRQ on a market

share basis, basically however big the company is, how much milk it processes, or how much milk it sells, for instance, that determines how much of the TRQ it gets. We talked about consolidation of processing. As you can imagine, that means that large scale processors or just processors in general are getting a lion's share of that TRQ. Okay. So a very few number of processors are the ones who actually have the right to import dairy, but they're actually

also the ones who are less incentivized to import international dairy products because they process domestic dairy products themselves. Absolutely. Or if we look at what they do bring in. So under the USMCA, we are not even close to hitting the fill rate. The fill rate is, you know, if you're allowed this much, this is just off the top of my head. If you're allowed 500 jugs of milk, just put it in a simple way, we're not even close to hitting like 10 jugs of milk. Right. And so in a number of those products, we're seeing like fill rates of 2%, 3% and those for things like skim milk powder, powdered butter milk, that kind of stuff. Now it's worth noting a trade agreement does not guarantee demand, right?

Simply because you negotiate this agreement does not mean that suddenly now Canadian consumers have to want your product. If there is an overabundance of domestic supply and that is at a competitive price, then no, we're not going to import. Why would we import, right? But we do see some higher fill rates on certain products such as cheese. Cheese fill rate is at 83%,

which is the highest of all the categories. But if you break that down and you look at what cheese we're bringing in, we see that the vast majority of it is cheddar and kind of cheeses like cheddar. So mozzarella and then grated and powdered cheese. That's the kind of cheese that you bring in for processing, not the kind of cheese you bring in to put on the shelf in a store for consumer to enjoy. So we see like very little blue vein cheese,

very little Gouda, very little Romano, Brie, all the good stuff that like, you can probably tell from my accent I'm British, like I want that stuff, because the good stuff. And so what distributors will say, what retailers will say is this is unfair. Consumers want choices, they want variety, but because of the way the system is built up, they're not allowed to bring that in. So it's not just the American exporters that have an issue with this. It's also the retail council of Canada, for example, told me they've long advocated for access to these TRQs and they're not allowed to get them. So one of those trading partners who has taken issue with this quota not

being filled is New Zealand. And last week, Canada made changes to the trade rules around Dairy with them. What happened there? In reporting on this, I once, I had a trade lawyer tell me something. They said that trade negotiations all about giving as much ground as possible, but also giving no ground. Um, so, and, uh, this is maybe, maybe a case of that. Maybe, maybe a case of that.

So on Thursday night, federal government announced that there will be some changes to the TRQ allocation mechanism, which is the issue that we're having here with the US and with New Zealand. Because, by the way, New Zealand also launched a dispute against us based on similar concerns, not identical, but similar concerns. Similar concerns, not identical, but similar concerns. And these changes would mean that New Zealand will be able to export $128 million more in extra trade. That's according to the New Zealand Ministry of Trade and Investment. And the changes basically did two things. They moved up the timeline by which importers would need to return unused TRQ. So let's say you got the TRQ license and then you didn't use it, you'd have to return that so someone else could bid on it and get it at a sooner date rather than leaving it till later on in the year when it's harder to find someone else who can fill that more quickly. And then

they also said that there would be penalties for those who consistently don't use the TRQ so you couldn't just like get the license and hold on onto it simply so no one else could have it. And New Zealand said, okay, that's fine. They'd launched this dispute with us. They were frustrated. They'd actually threatened retaliatory tariffs unless we did something about this. And they said, okay, this is settled.

We're moving on. The question that I had when that happened is what does this mean for the Americans? Are we going to be seeing the same concessions made for the US? They do have different demands and again to reiterate, the disputes under these two trade panels are different. But I reached out to the US Stereo Export Council and they said concessions of this type would be completely unacceptable. They want to see retailers and food service companies given TRQ licenses. And they also want to be compensated for all of the market opportunities they've lost because of this system since 2018. So do we have any indication of whether the Americans could get what they want?

Well, this is an interesting question, right? And I think it goes kind of beyond this one dairy issue and kind of goes to trade negotiations with the US overall. In one way, the US has a lot more leverage than New Zealand does, right? It is our largest trading partner. If we don't manage to secure some kind of deal with them, then that is economically devastating for us. It's what we've been reporting on. So the whole country has been aware of ever since

Trump first threatened, you know, 25% tariffs on all Canadian goods. So in that way, they have more leverage. In another way, they also have less though, right? Because what we see with what happened with New Zealand and Canada is a play by the rules kind of mentality. Look, you launch the dispute under the panel, the panel makes an agreement, you make those changes.

This is how the system works and you honor the trade negotiations and agreements that we have. And the US has consistently, since President Trump entered office, showed complete disregard for the trade agreements that exist. So why would Canada give significant ground in a formal rules-based system when they have no guarantee the US is going to continue to play by the rules? Global Affairs Canada told us they will be making no changes to the TRQ allocation mechanism as of when we published the story early last week. Right. So they're not moving on what the US wants.

That's what they're saying. So Kate, before I let you go, it sounds like the stakes for negotiations around the dairy industry are really high on all sides. Clearly, there's a lot of support for supply management in Canada, but do you think that there's an argument to be had about whether supply management still serves us? The first thing is that I would caution framing a discussion of supply management and binary terms. We either have it or we don't. I have spoken with the US Dairy Export Council and look, I'm sure in a perfect world they'd love to see supply management gone so they could just completely freely trade dairy product across the border, but they know that's unrealistic. It's important to emphasize what they

want here is changes to the rules around how dairy is traded. Whether they have a right to demand those changes is another question, absolutely. But that's important to note. There is ground here that can be given between the two extremes of yes, supply management, no supply management. And a discussion that frames it in just a yes or no, I think misses so many complex and interesting nuances that go in the middle. That said, if we're going to step back and look at supply management, how do I feel about that?

Well, as the agricultural reporter, it is my job to try to stay as down the middle on this subject as possible. And that's very, very hard to do. Everyone is very decided on it. But there was a part of me that admires a system that says, this costs us greatly and it complicates things with our trading partners.

But it's important that we have sovereign food supply. A nation needs to have a sovereign food production system so it can feed its own people when stuff hits the fan, such as a trade war, such as a pandemic, such as an actual global war. So this is touted as this idea of a way of keeping farms in business. And you do it across these kind of pretty important proteins. So you do it across milk, eggs, chicken, and turkey. You can feed a population with those four items. As the Ag Reporter, I see a lot of ground given over to massive consolidation. I see a lot of farms running out of business. Year by year, I report

on farmers who are saying that the price they're getting at market is not covering their costs in non-supply managed industries. And it's hard. It's really, really hard out there. The Canadian has to have asked themselves that question, right? The first question would be, how important is it that we have domestic production of these goods? And the second question is, is supply management the only way to achieve this? Or is there another system that we could use that could accomplish that? Big questions. Kate, thanks so much for joining us today. Thanks for having me on. That was Kate Helmore, The Globe's agriculture reporter.

That's it for today. I'm Irene Galia. Our producers are Madeleine White, Michal Stein and Ali Graham. This episode was mixed by Kevin Sexton. David Crosby edits the show. Adrian Chung is our senior producer and Angela Pacenza is our executive editor. Thank you for listening.