Can Canada uphold dairy supply management while giving U.S. more access?

News of a forthcoming trade deal between Canada and the U.S. this week has raised a key question: how exactly has Canada addressed the Americans’ issues with supply management, particularly concerning dairy?

The U.S. has long complained that Canada severely limits access to its dairy market through supply management, which allows a certain amount of tariff-free exports under quotas. Exports that exceed those quotas face much higher tariffs.

U.S. President Donald Trump on Wednesday claimed that Canada had agreed to bring tariffs “down to zero” for American farmers, but didn’t offer specifics.

“The tariffs will be non-existent for our farmers. Our farmers were paying tremendous tariffs into Canada, and those tariffs are going to be totally eviscerated,” he told reporters.

Canada-U.S. Trade Minister Dominic LeBlanc, meanwhile, told reporters in Washington that the supply management system would remain in place but would not say if its terms would change under the deal.

“The prime minister was very clear: we needed to protect supply management, we needed to ensure that the supply management regime remained entirely intact, and I’m confident that that’s the case,” LeBlanc said.

Looming over the final negotiations is the threat of new 50 per cent tariffs on Canadian goods, which the White House has said are partly meant to offset “discrimination” against U.S. dairy commerce through supply management. Trump paused the tariffs, which were set to go into effect Wednesday, for three days as the trade talks entered their final stages.

But the U.S. dairy industry says its issue is not with supply management itself, but rather how — according to them — it’s been used to continue blocking American dairy products under the Canada-U.S.-Mexico Agreement on free trade (CUSMA).

“The U.S. dairy industry has never been after supply management,” Jamie Castaneda, executive vice-president of policy development and strategy at the U.S. National Milk Producers Federation, said in an interview.

“It’s become even more difficult [for exporters because] the Canadian government has decided to play even more games.”

CUSMA increased U.S. access to Canada’s dairy market by allowing a set number of tariff-rate quotas to American exporters to sell their products into Canada duty-free. The Dairy Processors Association of Canada says the system means the U.S. has had access to nearly four per cent of the Canadian market.

The Trump administration and U.S. dairy industry have accused Canada of using a legal loophole to keep American products out of Canadian stores, however, by allocating most of the tariff-rate quotas to processors, rather than distributors or retailers.

“If you’re producing cheese here and you get the milk to produce that cheese, do you really want to bring in the same cheese from somewhere else? So there’s a reduced incentive if you are a producer of cheese to bring that cheese in,” said Mike von Massow, a food economist and professor at the University of Guelph.

“If we allocated it to distributors or, as some have argued, to the grocery stores, they would have an incentive to bring in either competing product or a range of other products.”

A CUSMA dispute resolution panel concluded in 2021 that Canada had acted inconsistently in its distribution of tariff-rate quotas. While Canada updated its procedures, the U.S. complained again, though a second CUSMA panel sided with Canada.

Still, Castaneda — who also works with the U.S. Dairy Export Council and helps lead lobbying and international trade negotiations on behalf of the industry — said that while Canada may be following the legal letter of its CUSMA obligations, it’s not honouring the spirit.

“If you get the fox to take care of the chicken house, well, the fox is going to do what the fox does, right?” he said. “So the processors were getting all the quotas, all the licences to import, but they never import anything.

“We want people that are really going to use the quotas to be the ones importing it. So if you have, for instance, a series of pizza chains, I want you to be able to have access to that quota so you can import the pizza cheese, so you can benefit and we can benefit.”

Data provided by the U.S. Dairy Export Council to Global News shows American dairy exports to Canada have increased under CUSMA from 93,525 metric tonnes in 2020 to 145,662 metric tonnes in 2025 — with the latter number equal to a value of US$1.38 billion.

The Dairy Farmers of Canada, which declined an interview with Global News while the final trade negotiations continue, claims the expanded U.S. dairy market access results in more than $140 million in losses per year for Canada’s dairy processors.

“We have made our concerns and position clear both publicly and with government: it is imperative that no more concessions on dairy or supply management are made in talks with the United States,” David Wiens, the association’s president, said in a statement last week.

Because supply management also sets production quotas for domestic dairy producers — allowing them to avoid overproduction — the Canadian industry fears any further concessions to the U.S. for market access would cut into those quotas, leading to wasted product and further lost revenue.

Bruce Muirhead, a history professor at the University of Waterloo who researches agriculture policy, said committing to giving more tariff-rate quotas to retailers or distributors under the U.S. trade deal would allow Canada to give the Trump administration a win without “fundamentally alter[ing] the nature” of supply management.

“I have no idea how this works out in practice,” he said, including whether it actually leads to more American products in Canadian stores, undercuts domestic producers or reduces prices for consumers.

“All of that remains to be seen.”

Canada’s dairy sector has previously claimed that, while dairy imported from abroad must meet Canadian health and safety standards, there is no requirement that the farms at which it is produced have to meet Canada’s on-farm standards.

Muirhead noted that many large-scale U.S. dairy farms operate as confined animal feeding operations, where thousands of cows are kept in tight spaces solely for milk production. Such operations have been referred to as “ticking time bombs” for disease by organizations like the Union of Concerned Scientists and the U.S. National Association of Local Boards of Health.

“The fact that most of their milk … comes from farms with a thousand milking cows or more is really significant,” he said. “They produce enough manure for a small city. There are huge issues with them in terms of water quality. They’re exempt from U.S. clean air and clean water rules and regulations.

“We could probably expect to see something like that here if we ever got rid of supply management.”

Some U.S. dairy farms also still use recombinant bovine somatotropin (rSBT), a genetically engineered hormone that increases milk production in cows, which is banned in Canada.

Health Canada says it’s been determined that rBST does not pose a health risk to humans, but there are animal health concerns, and therefore it was never approved for sale.

The Canadian Food Inspection Agency says it applies its health and safety standards to all international food exports, and the tariff-rate quota system also sets universal standards for dairy products specifically.

While Muirhead said rSBT can not be detected through product testing, some American producers indicate on their packaging whether they use rSBT on their farms.

Von Massow said he doubts food safety issues will arise if American imports do end up increasing.

“Will it be identical [to Canadian product]? No,” he said. “Will it be unsafe? No.”

Castaneda dismissed concerns about U.S. dairy standards as “B.S.”

“Canadians have always been coming to the United States, and I don’t know that they have ever had any complaints or any problems eating and drinking our milk and eating all our dairy products,” he said.