Trump is forcing the Canadian government to confront what it has long avoided: an end to supply management
U.S. President Donald Trump’s deeply harmful tariff rampage has put the Canada-U.S.-Mexico Agreement (CUSMA) under renewed strain. At the centre of that uncertainty is Canada’s supply management system, an economically costly and politically protected regime Ottawa has long refused to reform.
Supply management uses quotas and fixed prices for milk, eggs and poultry with the intention of matching supply with demand while restricting imports. Producers need quota in order to produce and sell output legally. Given the thousands of farmers spread across the country, combined with the fact that the quotas are specific to milk, eggs, chickens and turkey, the bureaucracy (and number of bureaucrats) required is huge and extremely costly. Department of Agriculture and Agri-Food 2024-25 transfer payments included $4.8 billion for “Supply Management Initiatives.”
The bureaucrats often get it wrong. Canada’s most recent chicken production cycle saw one of the worst supply shortfalls in more than 50 years. Preset quota limits stopped farmers from responding to meet demand, leaving consumers with higher grocery bills for 11th-hour imports. The reality is that accurately predicting demand is impossible.
The dysfunction doesn’t stop with chicken. Egg imports under the shortage allocation program had already topped 14 million dozen by mid-year. Our trading partners are taking full advantage. Chile, for example, is on track to double chicken exports.
The cost to consumers is considerable. Pre-pandemic research estimates the average Canadian family pays $300 to $444 extra for food as a result of supply management. And since, as a share of their income, lower-income Canadians spend three times as much as middle-income Canadians and almost five times as much as upper-income Canadians, the impact on them is proportionally much greater.
It’s no surprise that farmers are anxious to protect their monopoly. In most cases, they have paid hefty sums for their quota. If the price of their product were allowed to fall to free-market levels, the value of their quota would go to zero. In addition, the Dairy Farmers of Canada argue that supply management means “the right amount of food is produced,” producers get a “fair return,” and import restrictions guarantee access to “homegrown food,” all of which is debatable.
All price-fixing systems create problems. Dairy cattle are not machines. A cow’s milk production varies. If a farmer gets more milk than his quota, the excess must be dumped. When governments limit the supply of any item, its value always rises. Dairy quotas, by their very nature, have become a valuable commodity, selling for more than $25,000 per “cow equivalent.” That means a 100-head dairy farm is worth at least $2,500,000 in quota alone, a value that exists only because of the legislated ability to charge higher-than-market prices.
Dairy isn’t the only sector where government-regulated quotas have become very valuable. The West Coast fishery is another. Commercial fishery quotas for salmon and halibut have become valuable commodities worth millions of dollars, completely out of reach for independent fishers, turning them into de facto employees of quota holders.
While of relatively limited national importance, supply management is of major political significance in Quebec. As George Mason University and Montreal Economic Institute economist Vincent Geloso notes, “In 17 ridings provincially, people under supply management are strong enough to change the outcome of the election.”
That brings us back to the upcoming CUSMA negotiations. Under CUSMA, the U.S. gets less than five per cent of Canada’s agricultural products market. Given that President Trump has been a long-standing critic of supply management, especially in dairy, it’s certain to be targeted.
Looking to pre-empt concessions, supply-managed farmer associations lobbied the federal government to pass legislation keeping supply management off the table in any future trade negotiations. This makes voters in those 17 Quebec ridings happy, but it’s certain to enrage Trump, starting the CUSMA negotiations off on a decidedly adversarial note. As Concordia University economist Moshe Lander says: “The government seems willing even to accept tariffs and damage to the Canadian economy rather than put dairy supply management on the table.”
Parliament can pass whatever laws it likes, but Trump has made it clear that ending supply management, especially in dairy, is one of his main goals in the CUSMA review. It’s hard to see how a deal can be made without substantial reform. That will make life difficult for the federal Liberals. But the president will be doing Canadian consumers a big favour.
Gwyn Morgan is a retired business leader who has been a director of five global corporations.
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