Canadians paid dairy farmers for competition consumers never got
Canada and the United States are once again negotiating under the threat of tariffs. Washington has temporarily postponed a proposed 50% tariff on roughly $20 billion in Canadian goods while the two countries attempt to finalize a broader trade arrangement. Dairy access, along with American alcohol sales in Canada, has emerged as a central U.S. grievance. The threatened tariffs are excessive, and their legal justification is debatable. But Ottawa cannot dismiss every American complaint as protectionist fiction. On dairy, Washington is asking Canada to demonstrate that the market access it promised when CUSMA took effect in 2020 is real.
Canada agreed to establish tariff-rate quotas allowing specified quantities of American dairy products to enter at preferential tariff rates. In return for those concessions, Ottawa committed $1.2 billion in direct compensation to dairy farmers. These payments were not based on evidence that individual farms had lost sales or income. They were calculated primarily according to the amount of production quota held by each producer. Ottawa effectively compensated farmers for presumed market displacement before determining whether that displacement would ever occur. Taxpayers paid their part of the bargain. Consumers are still waiting for theirs.
Since July 2020, Canada has made approximately 413 million kilograms of preferential dairy access available to the United States. Only about 164 million kilograms were utilized. Approximately 249 million kilograms—or 60% of the negotiated access—went unused. Using representative wholesale and export prices for milk, cheese, cream, butter, yogurt and dairy ingredients, that unused access represents an estimated C500milliontoC700 million in American dairy products that could have entered Canada. At retail value, after processing, packaging and distribution, the amount could approach C$1 billion.
READ: Dairy farmers warn against concessions as U.S. tariff deadline looms
A tariff-rate quota is not an obligation to purchase foreign products. CUSMA requires Canada to provide an opportunity to import specified quantities at preferential tariffs, but it does not force Canadian companies to place orders. Demand, exchange rates, transportation costs and product specifications all affect utilization. Some dairy imports are also intended for processing rather than direct placement on grocery shelves. But when most negotiated access repeatedly goes unused, the design of the system must be examined. Approximately 149 million kilograms of fluid-milk access have gone unused, along with nearly 30 million kilograms of skim milk powder, more than 20 million kilograms of cream and approximately 13 million kilograms of whey powder.
Canada’s method of allocating dairy quotas is part of the explanation. Historically, significant portions were reserved for processors—companies that may have little incentive to import products that compete with their own Canadian production. A CUSMA panel ruled in early 2022 that Canada’s processor-specific pools violated the agreement. Ottawa changed its allocation policies, and a second panel subsequently upheld the revised system. Canada can therefore argue that its current policies satisfy the provisions considered by that panel. But legal compliance is not the same as delivering meaningful market access.
Washington continues to object that Canada excludes retailers and food-service operators from direct eligibility while allocating much of the quota to processors and distributors. The United States also notes that retailers can access certain European cheese quotas under Canada’s agreement with the European Union but cannot participate in the equivalent CUSMA allocation. Canada is therefore about to be asked, once again, to demonstrate that it is honouring the practical market-access commitments it made in 2020. Ottawa may defend supply management, but it cannot credibly insist that American exporters received meaningful access when most of the available volume was never used.
The broader compensation numbers make the contradiction harder to ignore. Across CETA, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and CUSMA, Ottawa allocated $2.95 billion in direct payments to dairy farmers, along with $250 million through the Dairy Farm Investment Program. That amounts to approximately $3.2 billion for dairy farmers before including substantial support for processors. This is not an argument against dairy farmers. They did not negotiate these agreements or design the compensation programs. They simply responded rationally to incentives created by governments and administered through Canada’s supply-management institutions.
It is, however, an argument for accountability. If Ottawa compensates an industry for surrendering market share, Canadians should be able to determine whether that market share was actually surrendered. Returned quotas should be reallocated sooner, and retailers, food-service businesses and independent importers should be allowed to participate directly. Allocation rules should favour applicants with credible plans to import rather than companies seeking to protect their existing market positions. Ottawa should also publish an annual accounting of access quantities, utilization rates, import values and measurable consumer benefits.
Canada does not need to abolish supply management to make CUSMA access commercially meaningful. But future compensation must distinguish between theoretical concessions and demonstrated losses. Announcing an import quota does not prove that farmers lost its full economic value—particularly when most of it remains unused. Canada now wants Washington to respect CUSMA, remove tariffs and restore predictability to North American trade. Those are reasonable objectives, but rules-based trade works in both directions.
Canadians were asked to accept a bargain: compensate dairy farmers in exchange for greater market access and competition. The compensation was real. Much of the competition was not.
