Cows in a dairy farm in Granby, Que. on Feb. 5. U.S. President Donald Trump has threatened to impose tariffs on Canadian dairy products.Christinne Muschi/The Canadian Press
As the United States presses Canada for dairy market access, federal and provincial leaders will have to decide whether it’s worth protecting supply management, a system that’s been an irritant with trading partners and a trade barrier within the country.
U.S. President Donald Trump threatened on Friday to impose tariffs on Canadian dairy within days after complaining that supply management is unfair to American dairy farmers. (Canada imposes steep tariffs on dairy imports that exceed a certain quota level for trading partners.) He reiterated those grievances on Tuesday on social media, alongside a threat to double tariffs on aluminum and steel to 50 per cent.
U.S. tariffs on dairy, if imposed, are unlikely to hurt Canadian farmers much, given the sector’s focus on meeting domestic demand. However, Mr. Trump’s threat suggests his administration will continue to push Canada for increased dairy market access as trade turmoil between the two countries continues.
“We’ve always had to have a serious conversation about supply management,” said Martha Hall Findlay, director of the University of Calgary’s School of Public Policy. “All the more reason now, because this is a clear irritant for Donald Trump.”
Proponents of the system, which controls the production and prices of eggs, dairy and poultry in Canada, say it ensures stable supply and fair prices for both consumers and producers.
To calibrate demand and supply, provincial boards are responsible for setting production quotas for farmers and prices for supply-managed goods. The federal government also protects those farmers from foreign competition by imposing tariffs as high 300 per cent on imports beyond an exempted level.
However, Canada’s desire to protect those sectors has hindered trade negotiations with countries such as the U.S. and Britain. It also limits interprovincial sales because of provincial production quotas, while research shows supply management raises prices on consumers.
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Dismantling the protectionist system would help Canada kill several birds with one stone: improving international trading relationships, dismantling interprovincial trade barriers and lowering prices domestically. Yet supply management has not been part of the national conversation on diversifying the Canadian economy, despite pledges from federal and provincial leaders of all political stripes to embrace pro-growth policies.
Ms. Hall-Findlay, who was a Liberal MP from 2008 to 2011, said the threat of tariffs gives Canada an opportunity to move toward dismantling the system supply management, and said that process would involve compensating farmers who have production quotas.
From an affordability standpoint, economists widely argue that supply management raises prices on consumers for basic food necessities such as milk and eggs. A University of Manitoba study published in 2015 found that it costs the poorest households $339 a year, which amounts to about 2.3 per cent of their income.
The system has had broader repercussions for the economy as well. Canada’s trade negotiations with Britain fell apart last year in part over access to the Canadian cheese market.
Colin Busby, director of policy engagement at the C.D. Howe Institute, said supply-managed sectors have to be on the table if Canada is serious about expanding its trading relationships to diversify away from the United States.
Federal politicians have continued to back supply management in the wake of complaints from Mr. Trump on dairy. Industry Minister François-Philippe Champagne doubled down on that with the Liberals' support on Monday.
“We launched the campaign at a dairy farm in Quebec,” Mr. Champagne told reporters in French, referring to a campaign event with Liberal Leader Mark Carney in Shawinigan, Que., back in January. “We’ve always been there to defend supply management.”
Meanwhile, in a statement, John Barlow, the Conservative shadow minister for agriculture, agri-food and food security said: “Conservatives continue to support supply management and will fight for Canadian farmers as we always have.”
NDP Leader Jagmeet Singh said last week that he would not allow supply management to be part of negotiations with the U.S.
Despite politicians’ rhetoric in support of supply management, Mr. Busby noted concessions on supply management were made during Mr. Trump’s first term, when Canada gave the U.S. more access to the country’s dairy market under the renegotiated North American free-trade deal. The federal government compensated affected dairy farmers for ceding ground.
The Bloc Québécois then introduced a bill to ban concessions on supply management in future trade negotiations, which passed in the House of Commons with support from all political parties, but died when Parliament was prorogued.
“That should not be revived when new Parliament forms,” said Mr. Busby, adding that trade negotiators should not be handcuffed in that way.
Most provinces have either sidestepped or voiced support for Canada’s supply management system amid the trade dispute with the U.S. and the Trump administration’s repeated comments on dairy market access. Negotiations on internal trade have steered away from discussions on the federal system as well.
Meanwhile, Alberta Premier Danielle Smith has acknowledged that Canada may need to make new concessions on supply management with the U.S.
During a radio interview last month, Ms. Smith said she has directed the Alberta agriculture minister to begin looking at how farmers could be compensated if Canada needs to cede ground.
“I know it’s a tough one because we’ve got a lot of supply managed here,” Ms. Smith said. “We’ve got a lot of people who paid a lot of money for quota and that’s why we have to make sure that nobody is disadvantaged if we have to make more concessions.”
Canada has long relied on a stable alliance with the United States to help ensure its prosperity. In the face of unpredictability to the south, this series examines barriers within and economic opportunities beyond.