The Decibel - Why Trump is targeting Canada’s dairy protection regime

Episode Date: March 18, 2025

Canadian dairy is a recent target of U.S. President Donald Trump’s proposed reciprocal tariffs coming in April. Trump’s proposed levies are in retaliation for the sector’s massive tariffs, which apply to American imports over a certain limit. According to the International Dairy Food Association, the import limits have never been exceeded.It’s part of a system called supply management. It controls the country’s domestic dairy production, and has strict regulations surrounding imports and exports. But some critics say it acts as a trade barrier. At a time when Canada needs to expand its relationships, can it afford to leave this system untouched?Today, the Globe’s economics reporter Nojoud Al Mallees is on the show to explain how Canada’s supply management system works, what it means for farmers and consumers, and why it’s become a target in Trump’s trade war.Questions? Comments? Ideas? E-mail us at [e-mail]

US President Donald Trump has been making a lot of tariff threats against Canada. And some of them are specifically about dairy. We don't need them for agricultural products because we have all the agriculture we need. They don't take our agricultural product for the most part, our milk and dairy, etc. Trump has threatened to impose massive tariffs on Canadian dairy entering the US. They'd be part of the reciprocal tariffs coming in April in retaliation for Canada's. We do limit American dairy imports and have tariffs of up to 300% but only.S. exceeds our import limit.

And according to the International Dairy Foods Association, that's never happened. All of this is part of our system of supply management. Canada carefully manages its domestic dairy production and has strict regulations surrounding imports and exports. But not everyone agrees that this system still makes sense. And the recent tensions around trade have reignited conversations about supply management. So today, Najud Al-Malese is on the show. She's an economics reporter with The Globe.

She'll explain how supply management works, what it means for farmers and consumers, and why it's become a target in Trump's trade war. I'm Manika Ramen-Welms, and this is The Decibel from The Globe and Mail. Najud, thanks so much for being here. Thanks for having me. So Trump's tariff threats against our dairy sector

have to do with our system of supply management, which I know sounds a little bit dull, but it's actually really important. So what exactly is this system? Supply management is a national system that controls both production and pricing for products like eggs, dairy, and poultry. So you have provincial marketing boards that set quotas for producers in their jurisdiction.

So farmers across the country are given out quotas for how much they're supposed to be producing of those products, and the pricing is already preset. On the national level, the federal government protects the system and protects farmers from competition by imposing really steep tariffs on imports that go beyond a certain level. So you have a certain level of imports that are tariff free. And then beyond that, you could see tariffs as high as 200%

to 300% on cheese, dairy, eggs, et cetera. OK. So it keeps prices stable, keeps production at a manageable level. I guess this kind of gets into it. Then why exactly does the system exist? The system is meant to provide some stability and predictability.

It was born out of a lot of volatility in the 1960s. A lot of countries subsidized their agricultural sectors. Instead of offering subsidies, the system was brought in to give farmers some stability in pricing and to manage production so that at its best consumers can be certain that there will be enough domestic supply of these essential food items. At the same time, the pricing is already preset. So you mentioned it was brought in a few decades ago, kind of amidst some volatility in the market.

Can you explain that a little bit? Like, why were we seeing that volatility? So, agricultural industries oftentimes experience a lot of volatility. There's a lot of seasonality that affects farmers. When it comes to dairy specifically, there was concern that the American market would overtake the Canadian market because of the size and scale of the industry there. Canada couldn't compete. And so the other element of supply management is also import controls. And so Canada imposes really high tariffs beyond a certain level that it will admit for imports on things like cheese and milk and eggs and that's meant to protect Canadian

producers from competition with other countries and namely the United States Okay So it sounds like there's these barriers in place then to make sure the market is not flooded by Cheaper goods from like the states for example then that would make Canadian farmers not competitive with them Yes Is this kind of like I think of this in a way, kind of like Canadian content rules on like radio and television? Like if we didn't protect certain, you know, segments of that industry, we just wouldn't

have a domestic industry because it would get overrun from content from the states. This is also borne out of the fact that yes, Canada oftentimes feels like it needs to shield itself from the United States. is also borne out of the fact that, yes, Canada oftentimes feels like it needs to shield itself from the United States. AMT – OK. So let's talk about what we actually do allow into the country then when it comes to dairy, eggs, poultry. Can the US still export those products into Canada? MS – It can, but it can only export a certain amount without having to pay really steep tariffs. a certain amount without having to pay really steep tariffs. And so beyond that tariff-free level, tariffs on things like cheese and milk and

eggs can reach 200%, 300%. And so it kind of serves as a limit on how much other countries can sell their products in Canada. And so this is kind of where Trump is getting his argument. He's looking at these numbers of the 200%, 300% of that threshold, and that's where he's basing his statements on. Exactly.

What about the other way around? Can Canada export these products to other countries? It can, but it's constrained by the fact that supply management sets out quotas for farmers so that their production matches domestic demand specifically. So supply management is not geared towards the global market on these kinds of products. And so for example, the US has been dealing with avian flu breakout that's affected eggs.

It was looking for other countries to buy eggs from. And Canada can't help that much because, again, we're supply managed. And so it doesn't really have excess production. And so we do export, but it's minimal. OK. So basically, we have to have enough eggs to go around within the country before we actually export to another country then.

Exactly. Of course, this isn't the first time that Trump is talking about Canadian dairy. This was a point of negotiation during his last term when they were renegotiating the NAFTA agreement, what is now called KUSMA or USMCA. What exactly happened there, Najude? Yeah, so Donald Trump has been complaining for a long time that Canada isn't fair or treats American dairy farmers very unfairly. During his first term, Canada had to make concessions

on supply management when they renegotiated KUSMA and increased how much Americans can export in dairy products to Canada without having to face those deep tariffs. And the federal government did it, but then essentially told dairy farmers, we're never going to do this again. Here's compensation. And there was this whole push to make sure that we don't give concessions again on supply management in the future during trade negotiations.

Okay. Well, it sounds like then as a result of that farmers were kind of upset that we made those concessions. Yes, absolutely. Yeah. Hmm. This is a system then that is designed essentially to make it harder for other countries like the US to export into Canada. So I guess I wonder, could Donald Trump have a point here? Is this supply management system unfair? So a lot of economists and experts say that Canada puts itself in a tricky spot when it's

going through trade negotiations or even pushing back, for example, right now on the US tariffs because it has the supply management system that is clearly a protectionist system that goes against the principles of free trade. And so it's a little bit difficult on that point specifically to have a coherent argument against the US attacks on this issue. And we've seen that supply management has been an issue in other trade negotiations for Canada and specifically Britain.

Okay. So this does not just come up when we're talking to the US. It actually comes up with other countries as well. What did Britain have to say about it? So trade negotiations last year with Britain fell apart in part over dairy and specifically cheese. Britain wanted more access or wanted access to the Canadian market and they couldn't get to an agreement and the UK walked away from negotiations. And so there are now multiple examples where Canada has struggled with trade negotiations

because of supply management. So it sounds like this is maybe a little bit of a sticking point then when it comes to us negotiating trade deals with other countries. People don't like the fact that we have this protected industry. Yeah, the word that people often use to describe it is that it's an irritant. It's an irritant in Canada's trading relationships with other countries. Trump is threatening to put reciprocal tariffs on Canadian dairy entering the US market.

This is part of the reciprocal tariff threats that could be coming in April. What would be the impact on our industries if he does that? Our dairy industry won't really be impacted a lot by those reciprocal tariffs in aggregate, because again, they don be impacted a lot by those reciprocal tariffs in aggregate because, again, they don't export a lot to the US and they focus on meeting domestic demand. And so even in the statement that was put out by dairy farmers, they pointed to the

fact that Canada made concessions during KUSMA. And they didn't necessarily say much about the actual reciprocal tariffs. But what that threat tells us is that the US is still upset about this and this isn't going to go away. And as trade tensions continue and even escalate, governments in Canada and including industry know that this is going to be an issue that they will have to deal with with the United States. It's more of a signal than anything else. We'll be back in a moment. Okay, so we know that supply management was established to protect our domestic industry, but this was set up decades ago, right?

Najude, what are the current benefits that we see from this system? Proponents of the system, including industry folks, will say that it provides stability for both producers and consumers, that we're shielded from massive price fluctuations, that we ensure we can domestically produce these very essential goods that families rely on a lot, milk, cheese, eggs, chicken. And so proponents of the system say, even if let's say consumers are paying a little

bit more, the benefits outweigh the costs. Okay. So when you say consumers pay a little bit more, do we actually pay more for like a carton of eggs than we would otherwise? So research suggests that Canadians are paying more and would save money if we didn't have a supply management system and that the effect is the most significant on low income Canadians because they spend more of their money on food and those price differences matter more for them. And so, yes, if we didn't have supply management, market prices would

be lower than they are right now, according to research and experts. Okay, so the market price would be a little lower, but you seem to say that price stability, so not these massive fluctuations, is also part of this. So how does that factor in? Well, right now we see in the US there's been a massive increase in egg prices because of avian flu. And when you're in a free market, prices are determined by supply and demand.

And so if supply falls a lot, then prices go up. Well, when you have a system that already sets the price, that can't happen. There is no adjustment between demand and supply. And so presumably you don't have those kind of price shocks if you have a system like this. So, our supply management system actually kind of cushioned us then from seeing those massive price fluctuations for the price of eggs that the states is seeing? Yes. So there, a shortage will just spike up prices, whereas here, you wouldn't see that kind of thing happen. What about the perspective of the producers? So I'm thinking like farmers, people who produce

eggs and dairy and poultry. How would they view this system? Well, for them, it offers a lot of stability, obviously, because it determines how much they're going to produce. They're guaranteed a certain price. And so they don't have to worry about competing because they have these quotas. And so they don't have to worry about a larger producer swallowing them or foreign competition. And so yes, the industry is a huge proponent of supply management. We're also having conversations more these days, too, about breaking down interprovincial trade barriers, right?

Because of the tariff threats from the states, trying to trade between provinces and territories more. How does this system factor into this conversation about supply management? Well, supply management is a form of an interprovincial trade barrier. You can sell products to different provinces, but there's various regulatory requirements to being able to do that. And obviously, each province has its own controls on production and pricing. So it's not a free market within Canada, and it operates based on these provincial marketing boards across the country.

It is not one unified system. Okay, so Ontario's got a system, Alberta's got a system, and so it's not necessarily free to go between those systems. Then it has to happen at a provincial level. Yep, and again, like you can sell to different provinces, but there's a regulatory process you have to go through to do that. So we've talked a bit about the benefits of the system. What about criticisms of supply management?

What do people say on the other side? Well critics have been for years calling for dismantling the system. You know I think the primary benefit that many would say would come from removing the system is lower prices for consumers. The second issue, and we've already talked about this a bit, is on trade. If it's a roadblock during trade negotiations, how much are we hurting ourselves and other parts of the economy because we want to protect supply management? Are we picking winners and losers in the economy? And right now, we're in a moment where we're seeing that play out on a very high level, obviously, and there's

a lot going on between Canada and the US, but a lot of those critics of supply management say this is the moment to really take this seriously because it could help us at least remove one irritant with the US and potentially help smooth out the relationship even a little bit. And a lot of these conversations are happening at the governmental level, obviously. So how do federal political parties in Canada, how do they approach this issue? There is across-the-board support for supply management in Canada across the political spectrum. When Canada made that concession on dairy during Kuzma negotiations,

the Bloc Québécois brought forward a bill in the House of Commons to essentially ban the government from making concessions in the future on supply management. And it received support from all parties. It passed the House of Commons, but it didn't become a law before parliament was paroked. So kind of the bill died. But it tells you how much political parties support supply management and don't waver on the issue. And it's largely for political reasons. There's a lot of dairy farmers in Ontario and Quebec. All these parties are going after votes in the same regions.

And so even right now, as we see these tensions with the US, every party continues to support supply management. Danielle Pletka Interesting. Okay, so across the board, politicians in Canada seem to support it, even though it does create some hurdles in these trade conversations. Shruti Srinivas The only leader that I've seen say something that suggests they're open to making concessions on supply and management is Alberta Premier Danielle Smith in a radio interview last month, I believe. She said

that she's already asked her agriculture minister to start looking at what it would look like to compensate farmers for any concessions they would have to make, Canada would have to make on supply supply management to repair the trade relationship with the US. But nobody else has really been talking about this, including all the premiers who've been very active on the inter-provincial trade file, on economic policy right now in the face of the US trade war. None have had much to say about supply management.

Okay, interesting. So Daniel Smith seems to be the only standout in that way. If we do kind of look at what she was saying with those statements though, what would happen if we dismantled this system? Like how would that actually change things? If we were going to go full steam ahead with dismantling supply management, it would be a process that would take years and it would have to involve some sort of compensation for producers who right now Have quotas that are worth a lot of money. This is the quotas to produce so many eggs or so much milk. Yeah, exactly

Australia and New Zealand have both Dismantled their systems before so there is a bit of a blueprint for Canada But again, we would have to get over the political hurdle first before we could talk about dismantling the system. What's more likely in my estimation is that as Canada continues to negotiate with the US and let's say Kuzma negotiations are reopened, it's more likely that Canada would have to make some sort of concession on supply and management rather a complete dismantling of the system. So allow a little bit more of U.S. imports into the country or something like that.

Exactly. You mentioned that New Zealand and Australia had this system or similar system in place and did dismantle it. Do we have any information on I guess why or how they did that? Yeah. So in Australia, the way that they did it is that they did this in 2000, and it was over an eight year period. And they had to compensate their dairy farmers.

The way they did it is that they essentially created this levy that consumers would pay when they're purchasing these products. And that money was collected and given to farmers. But the levy was lower than what consumers were paying previously under the supply was lower than what consumers were paying previously under the supply management system. So consumers were already seeing prices fall, but at the same time, the government was able to take that money and give it to farmers

to compensate them for the transition. Okay. So there was some government involvement there to kind of ease that burden on the producers. Exactly. Okay. So yeah, it sounds like if this kind of system is not in place, there is some kind of government intervention that has to happen in a way to compensate people. At least for a period of time, because it would be a difficult transition. I think even those who are proponents of dismantling supply management will admit that it would be a difficult adjustment for producers who have operated this way for very long.

Just lastly here, Nishuuj, with this current moment that we're in, these threats from Trump, the need to expand our trading partnerships, I guess I wonder from the experts you've talked to, is there a sense that we need to consider maybe dismantling this supply management system? I think the challenge is that Canadians are generally supportive of supply management. And then you have very active lobby groups from industries that are supply managed, that are very politically motivated and run aggressive campaigns. And so to move towards dismantling supply management, there's a lot that would have to happen.

You'd have to convince Canadians that this is worthwhile. And then that could provide a reason for politicians to use political capital to go after this. It also all depends on how bad things get with the US and whether Canada could get a lot in return for conceding on supply management. So there's obviously more discussion right now about this, but so far I don't see any indication that we're going to see this system go away anytime

soon. Time will tell and I think as we get closer to more normal negotiations with the U.S. on trade, we'll get a better picture of what Canada is willing to give up and whether it'd be worth it. And Jude, it's been so great to talk to you. Thank you for being here. Thanks for having me. That's it for today. I'm Maynika Ramon-Wilms.

Our intern is Amber Ransom. Our producers are Madeleine White, Michal Stein, and Ali Graham. David Crosby edits the show. Adrian Chung is our senior producer and Matt Fraynor is our managing editor. You can subscribe to The Globe and Mail at globeandmail.com slash subscribe. Thanks so much for listening.