The dairy industry is the cornerstone of Canada’s supply management system—our unique style of protectionism ensures that domestic dairy producers have a sustainable, predictable, and fair share of the market. It is a significant component to international trade discussions, particularly with nations with big dairy industries that want their goods in Canadian grocery stores. 

The recent suspension of trade negotiations by the UK is an example of dairy diplomacy in action. After the temporary post-Brexit agreement between the UK and Canada expired at the end of 2023, little progress was made on designing a long-term bilateral agreement. With the UK wanting low-tariff access to Canadian markets, Canada was not willing to budge in any concessions in this space. 

This is in spite of Canada being very receptive to European cheese imports under the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), which came into force in 2017. Cheese imports from Italy, France, and the Netherlands have doubled since then, and have now outpaced the US in value. While the US is still Canada’s largest source of cheese imports by volume, the growth of European cheese imports is increasing much faster and driven by market demand for high-quality, premium cheeses. The absence of the UK in the European Union will be sorely felt by the UK dairy industry who now misses out on these favourable quotas. If a bilateral trade agreement is negotiated, it remains to be seen what concessions the UK is willing to make in order to reclaim its market access. Overall, cheese imports from CETA and other free trade agreements are equivalent to about 10 per cent of Canada’s milk production. 

A more decisive victory for Canadian dairy farmers came late last fall as a Canada-United States-Mexico Agreement (CUSMA) dispute panel concluded that Canada’s dairy measures and practices did not violate articles of the free trade agreement. Canada was not obligated to adjust its tariff-rate quotas and the final decision of the panel cannot be appealed.

This decision is the result of years of disputes between the US and Canada since the signing of the CUSMA in July 2020. Beginning with a dispute panel decision in December 2021 which found Canada’s practices inconsistent with the agreement, the US continues to allege that Canada’s revised policies unfairly restrict market access. A major part of the US complaint is that Canada is not allocating quotas to categories of applicants that the US believes it ought to. Specifically, they argued that Canada is obligated to allow American retailers and food service providers into the Canadian market. The panel found that Canada is not obligated to accept any and all applicants who are eligible. Although the CUSMA decision was celebrated and welcomed by the Canadian government and dairy industry, the US is still keen on seeking creative ways to break into the Canadian market. 

Canada’s supply-managed dairy sector will continue to be a major point of contention between Canada and its allies. Despite this, Canada will likely maintain its firm stance on protecting supply management for dairy in the near future. According to the 14th edition of Canada’s Food Price Report, the inflation rate for dairy products in 2023 was 4 per cent, less than the overall food inflation rate of 5.9 per cent. In 2024, it is projected to continue to trail the overall food inflation rate by 1 to 1.5 per cent. The dairy industry has shown to be resilient to inflationary pressures affecting most other food industries. As more dairy disputes will surely develop, Canada will need to continue to strategically balance the protection of domestic producers with the demands of consumers for international goods.