Canada's dairy industry policy is among the most politically sacrosanct in the country, and it has long been a thorn in the side of Donald Trump. The country's dairy supply management system is now back in the spotlight after the US president singled it out as one of three main irritants used to justify a 50% tariff on $20bn worth of Canadian goods imported to the US, set to come into effect in August.
Trump argues that the system, which uses production quotas, set pricing, and import quotas on dairy, eggs, and poultry, is "unreasonable" to American farmers who want to sell their products north of the border. Canadian politicians must now decide whether to stand firm on the popular supply management system or risk the ire of the public and a politically "powerful" dairy industry by trying to fix the issue with Trump.
So far, they have indicated that dairy is a non-starter. Quebec Premier Christine Fréchette, whose province is home to Canada's largest dairy industry, said on Tuesday that supply management was non-negotiable.
Last week, US-Canada Trade Minister Dominic LeBlanc told the BBC that the system "is a cornerstone of Canada's economy and our rural communities" that "ensures that Canadians have access to high-quality dairy products made by Canadian dairy farmers". Supporters argue that it helps Canadian farmers and guarantees price and supply stability for food staples.
Dairy farmers have also been known to stage protests - complete with tractors and cattle on Parliament Hill - when faced with possible concessions in trade talks.
"It is the most powerful political lobby in the country that stretches across all of the major political parties,"
David Clement, a Canadian policy director at the international advocacy group Consumer Choice Center, said.
Canada's supply management system has existed since the early 1970s and has endured even as other Commonwealth nations, including Australia and New Zealand, phased out similar policies. Farmers hold production quotas that limit how much dairy they can produce, and prices are then set by marketing boards in each province, giving farmers a predictable income while providing a consistent domestic supply.
A small amount of foreign dairy can enter Canada tariff-free or at low tariff rates under set quota limits. Goods that exceed the limit, however, face a levy of 200% to nearly 300%, making it prohibitively costly for foreign producers and consumers to sell in Canada.
At present, US producers have tariff-free access to only 3.5% of Canada's market, even though Canada is among the top importers of US dairy and bought $1.3bn worth of products in 2025, according to data from the US Department of Agriculture (USDA).
American farmers have long demanded greater market access, in part because of record high dairy production in the US that domestic consumption does not support. Producers are now looking to sell elsewhere and are eyeing the market of 40 million people north of the border.
A White House order released on Monday argues that Canada's free trade agreement with the EU makes it easier for European producers to sell their cheese in Canada than for US producers, saying that amounts to "discrimination".
Supply management has not been only Trump's frustration. The previous Biden administration twice challenged Canada's dairy quota practices under the USMCA, the North American free trade pact that is at the centre of current talks between the US and Canada.
In 2024, the UK walked away from trade talks over disagreement on tariff-free access for British cheese producers. The system has also been criticised by the Organization for Economic Co-operation and Development (OECD), which argues it distorts production and trade.
Even some Canadian economists and pundits have called for it to be dismantled or reformed.
"Kill supply management," Calgary journalist and writer Jen Gerson argued in a column, external published this month before Trump's latest tariff threats, calling it "anachronistic" and blaming it for driving up food prices in Canada.
Clement, with the Consumer Choice Center, wrote last year that the Trump administration "has a point" to say that American farmers are treated unfairly by their northern neighbour.
He also argued that Canada's supply management system had artificially inflated the prices of household staples like dairy and eggs - an issue he said Canadians should be taking note of given the country's current cost of living crisis.
"We should get rid of supply management for our own good, outside of any negotiations and trade deals,"
he told the BBC in an interview.
Doing away with supply management, he argued, would save Canadians money while also giving them more choice at the grocery store. It would also help Canada diversify its trade by opening up its market to other countries.
The most recent data shows that Canadians paid an average of C$3.19 ($2.26; £1.69) for 1L of milk in May, while Americans paid C$1.95 for the same amount, according to numbers from Statistics Canada and the USDA.
Those calling for the end of the current system, however, are in the minority. Around 77% of Canadians support keeping it in place, polling suggests, with Canadians saying they want to protect local farmers and access to high-quality dairy products.
"I don't want cheap American milk products,"
wrote Gary Johnson from Ontario to the Globe and Mail in June.
"Let the United States send dairy products. I don't think any of us will buy it,"
wrote Mark Knudsen from Mississauga.
David Wiens, a third-generation dairy farmer from Manitoba and president of the Dairy Farmers of Canada, argues the framework has helped keep prices steady while protecting "food sovereignty".
"Dairy prices are actually more stable than many other food categories, and more competitive internationally than people often realise,"
he told the BBC, adding that prices were determined by a number of economic factors.
Wiens noted that US consumers also saw the cost of eggs skyrocket after a bird flu outbreak disrupted production, and argued that supply management helped shield Canadians from similar price spikes.
Those opposed to supply management say the public support reflects a lack of awareness of a complex trade and supply policy, and they argue it has become politically risky to suggest reforms. Changing it would likely cost the governing Liberals a number of seats in parliament, said Ryan Cardwell, a professor at the University of Manitoba who has researched the political support for supply management.
It would also be financially costly, as the government would have to pay dairy farmers through a compensation package that some estimate to be in the billions.
"It would be an upfront cost, and of course governments hate that,"
Cardwell said.
When Australia phased out its supply management system, it used a temporary milk levy on consumers to fund the transition, while the European Union gradually increased quotas by 1% annually before formally abolishing them in 2015.
But in Canada, Cardwell contends that supply management is likely "not going anywhere".
Watch: 'It's frustrating' - Canadians react to the US tariffs
How entrenched is Canada's dairy system?
Canada's supply management system has been in place since the early 1970s and has survived while other Commonwealth countries, such as Australia and New Zealand, removed similar policies. It gives farmers production quotas to limit output, while provincial marketing boards set prices to provide predictable income and a steady domestic supply.
The system also restricts imports. A small amount of foreign dairy can enter tariff-free or at low tariff rates within quota limits, but imports above those thresholds face levies of 200% to nearly 300%, making it too expensive for many foreign producers and consumers to sell in Canada.
US producers currently have tariff-free access to only 3.5% of Canada's market, even though Canada is among the top importers of US dairy and bought $1.3bn worth of products in 2025, according to the USDA.
Why is Trump targeting it now?
Trump has singled out dairy supply management as one of three major irritants used to justify a 50% tariff on $20bn worth of Canadian goods imported to the US, which is scheduled to take effect in August. He says the system is "unreasonable" to American farmers who want to sell their products in Canada.
A White House order released on Monday also claimed that Canada's free trade agreement with the EU makes it easier for European cheese producers to sell in Canada than for US producers, describing that as "discrimination".
This is not the first time the system has drawn US criticism. The Biden administration twice challenged Canada's dairy quota practices under the USMCA, the North American free trade pact at the centre of current talks between the two countries.
What are Canadian leaders saying?
Canadian politicians have signalled that dairy is a non-starter in negotiations. Quebec Premier Christine Fréchette, whose province has Canada's largest dairy industry, said on Tuesday that supply management was non-negotiable.
Last week, US-Canada Trade Minister Dominic LeBlanc told the BBC that the system "is a cornerstone of Canada's economy and our rural communities" that "ensures that Canadians have access to high-quality dairy products made by Canadian dairy farmers".
They argue that supply management supports Canadian farmers and guarantees stable prices and supply for staple foods. Dairy farmers have also staged protests, including bringing tractors and cattle to Parliament Hill, when trade talks have raised the possibility of concessions.
"It is the most powerful political lobby in the country that stretches across all of the major political parties,"
said David Clement, a Canadian policy director at the Consumer Choice Center.
Is there any support for reform?
Yes, but it is limited. Some Canadian economists and pundits argue that the system should be dismantled or reformed, saying it distorts production and trade and contributes to higher food prices.
Calgary journalist and writer Jen Gerson wrote this month, before Trump's latest tariff threats, that supply management should be "Kill"ed and described it as "anachronistic" in a column, external that blamed it for driving up food prices in Canada.
Clement has also argued that the Trump administration "has a point" in saying that American farmers are treated unfairly by Canada. He wrote last year that supply management had artificially inflated the price of household staples such as dairy and eggs, which he said mattered during Canada's current cost of living crisis.
"We should get rid of supply management for our own good, outside of any negotiations and trade deals,"
he told the BBC in an interview.
He said ending the system would save Canadians money, give them more choice at the grocery store, and help Canada diversify trade by opening its market to other countries.
Recent data shows Canadians paid an average of C$3.19 ($2.26; £1.69) for 1L of milk in May, while Americans paid C$1.95 for the same amount, according to Statistics Canada and the USDA.
Still, opponents of the system remain in the minority. Polling suggests around 77% of Canadians support keeping it, saying they want to protect local farmers and preserve access to high-quality dairy products.
"I don't want cheap American milk products,"
wrote Gary Johnson from Ontario to the Globe and Mail in June.
"Let the United States send dairy products. I don't think any of us will buy it,"
wrote Mark Knudsen from Mississauga.
Why do supporters say it should stay?
Supporters say supply management gives farmers steady income, protects food sovereignty and keeps dairy prices more stable than many other food categories. David Wiens, a third-generation dairy farmer from Manitoba and president of the Dairy Farmers of Canada, said the framework has contributed to that stability.
"Dairy prices are actually more stable than many other food categories, and more competitive internationally than people often realise,"
he told the BBC, adding that prices were determined by a number of economic factors.
Wiens pointed to the bird flu outbreak in the US, which caused egg prices to skyrocket for American consumers, and said supply management helped shield Canadians from similar price spikes.
Why is reform seen as politically difficult?
Opponents say the public support comes partly from a lack of awareness of how the policy works, but they also say it has become politically risky to propose changes. Ryan Cardwell, a professor at the University of Manitoba who has studied support for supply management, said reform would likely cost the governing Liberals several seats in parliament.
It would also be expensive because the government would need to compensate dairy farmers, with some estimates putting the cost in the billions.
"It would be an upfront cost, and of course governments hate that,"
Cardwell said.
When Australia ended its supply management system, it used a temporary milk levy on consumers to fund the transition, while the European Union raised quotas by 1% annually before formally abolishing them in 2015.
Cardwell says Canada's system is likely "not going anywhere".
Key Facts
- Trump has cited Canada's dairy supply management system as one of three main reasons for a 50% tariff on $20bn of Canadian goods imported to the US, due in August.
- US dairy producers currently have tariff-free access to 3.5% of Canada's market, and Canada bought $1.3bn worth of US dairy products in 2025, according to the USDA.
- Polling suggests around 77% of Canadians support keeping supply management in place.
- Canadians paid C$3.19 for 1L of milk in May, compared with C$1.95 in the US, according to Statistics Canada and the USDA.
- Ryan Cardwell says reform would be costly and politically difficult, and that the system is likely "not going anywhere".
