U.S. dairy farmers are as coddled as those in Canada, and as much as 20 per cent of their revenues come from direct subsidies.BEN BREWER/Reuters
The U.S. dairy lobby was squawking this month about what it says is Canada’s bad-faith practices around American milk imports under the United States-Mexico-Canada Agreement on free trade.
CUSMA, as the deal is known in Canada, gives the U.S. dairy industry tariff-free access to about 3.5 per cent of the Canadian market, but that figure has never been achieved because of the way Canada allocates the related quota.
Ottawa gives much of it to major Canadian producers, who have little incentive to import their U.S. competitors’ products. The U.S. government took the issue to a CUSMA dispute settlement panel in 2021 and won its case, forcing Canada to change its tariff allocations.
The U.S. made a second formal complaint in 2023, but this time it lost. Still, imports of U.S. dairy products into Canada have surged since CUSMA came into force, going from $700-million in 2018 to $1.2-billion in 2024 in spite of Canada’s infamously protective and anti-market supply management system for dairy.
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And yet now the Americans are complaining again. The U.S. dairy lobby has correctly assessed that this is the moment to raise its voice, in the hope of getting Canada to reallocate its tariff-free quota further in its favour lest it face Mr. Trump’s wrath – even though the CUSMA dispute panel ruled that Canada is no longer violating the agreement, and even though Parliament recently handcuffed Canadian negotiators by making it illegal for them to offer trade partners more access to the Canadian dairy market.
Lost in all this is the fact that U.S. dairy farmers are as coddled as those in Canada.
Up to 75 per cent of U.S. dairy farms fall under a federal regime that sets a minimum price for their raw milk. That is further buttressed by a heavily subsidized government insurance program that protects farmers’ profit margins when feed prices rise; it paid out $1.3-billion in 2023.
Overall, as much as 20 per cent of their revenues come from direct subsidies, and they benefit additionally from indirect subsidies for feed and irrigation.
The U.S. is not alone. The dairy industry is one of the most heavily subsidized and protected sectors in the world. In the European Union, dairy farmers get subsidies and price supports worth up to $16-billion a year; as much as 40 per cent of dairy farm income comes from government support.
A number of smaller countries, such as Japan, South Korea, Norway and Switzerland, impose massive tariffs on imported dairy products that exceed minimal quotas. EU countries do the same for some products.
The big exception is New Zealand. It has no dairy subsidies and is one of the world’s biggest exporters of some dairy products. But it benefits from being located thousand of kilometres from its subsidized competitors, shielding it from cheap imports.
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No country besides New Zealand can claim to be pure of heart when it comes to dairy. Political sensitivities around the family farm and the status of dairy products as food staples mean the industry gets special treatment everywhere, and every major market is distorted.
Canadian dairy farmers themselves receive no direct subsidies tied to production – they just get an artificially high price at the farm gate and are protected from foreign competition by tight quotas and massive tariffs.
It is a regressive system that puts the cost burden on consumers, hitting average families and the poor harder than the wealthy. The U.S. and EU systems, for all their faults, are funded by government revenues, which largely come from progressive tax systems and are not a hidden cost.
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The bottom line, though, is that, if supply management were ever abolished (here’s hoping), it would have to be replaced at least in the short term by billions of dollars in subsidies so Canadian dairy farmers could have a fighting chance against their heavily subsidized U.S. competitors.
Such a system wouldn’t be regressive and built around hidden costs paid by consumers. It would also put Canada and the U.S. on the same footing when it came to trade negotiations: you lower your subsidies and we’ll lower ours.
But any suggestion that the U.S. dairy industry is a free-market operation unfairly treated by Canada’s supply-management cartel lacks perspective. The U.S. can be as pushy as it wants about access to Canadian markets, but it shouldn’t be mistaken for a country that has the high ground.