Canadian dairy industry members say they're less worried about the threat of steep U.S. tariffs than they are over a looming battle over supply management in eventual free trade talks. A barn cat looks over at cows as they wait to be milked at a dairy farm in Granby, Que., Wednesday, Feb. 5, 2025. THE CANADIAN PRESS/Christinne Muschi

MONTREAL - Canadian dairy farmers say they are less worried about the threat of steep U.S. tariffs than about a looming battle over supply management.

U.S. President Donald Trump has threatened to impose what he calls "reciprocal" tariffs on Canadian dairy. The president's team has repeatedly said that Canada imposes 250 per cent dairy tariffs, without explaining how dairy duties actually work or noting that the U.S. also has industry-related tariffs of its own and a highly subsidized agricultural market.

Trump posted about dairy again on social media on Tuesday, writing that "Canada must immediately drop their Anti-American Farmer Tariff of 250 per cent to 390 per cent on various U.S. dairy products, which has long been considered outrageous."

Quebec farmer Markus Schnegg says nearly all the dairy produced in Canada is sold for domestic consumption, meaning the targeted U.S. tariffs would only affect a small fraction of the market.

But he is worried that Canada's supply management system — which protects the industry from international competition — appears to be in the U.S. president's crosshairs ahead of a review of the Canada-United States-Mexico Agreement.

Canada’s system of supply management for dairy, poultry and eggs functions by setting production quotas for farmers, guaranteeing minimum prices and maintaining import controls.

Schnegg says his farm in St-Blaise-sur-Richelieu has about 160 head of cattle in total, with 80 milking cows. He says the U.S. dairy industry dwarfs Canada's, with some farms having as many as 20,000 cows.

"Our market is two per cent of the United States market," he said. Without supply management, "they can flood us in a minute." He said U.S. producers also have advantages in the form of a milder climate, as well as cheaper labour -- often in the form of undocumented immigrants.

University of Guelph food economist Michael von Massow says that Canada imports far more dairy from the U.S. than it exports, which suggests an escalating dairy tariff war could hurt American farmers more than Canadian ones.

"Would the industry feel (the tariffs)? Yes. Would it be a significant disruptor to the Canadian dairy industry? Not at all," he said in a phone interview. "And if the Canadians put a similar tariff on the product that's already coming in from the U.S., which is not unlikely, then in fact it would be a net benefit for Canada."

Von Massow said the Trump administration's statements on dairy are “not entirely accurate.”

He added that before the trade war, the U.S. dairy that Canada imported wasn't tariffed at all because it was less than the limit agreed upon by the two countries in the existing free trade deal. Imports above that limit face Canadian tariffs of about 250 per cent -- but he says the United States has not been hitting the quota.

"In fact, there is room for more to come from the U.S. before it hits that high level of tariffs, so, yes, tariffs are 250 per cent or 240 per cent, but no, none of the U.S. dairy products coming into Canada are currently facing that level of tariff," he said.

The Canadian government did include some dairy products in a list of $30 billion worth of goods that it slapped with a 25 per cent reciprocal tariff earlier this month.

The president of Quebec's main dairy producers association says that only one per cent of Canada's dairy is exported to the United States -- largely in the form of specialty products such as fine cheeses.

But Daniel Gobeil says that, despite the low number of exports, the trade war is expected to raise the cost of production on both sides of the border and create a climate of uncertainty that makes farmers reluctant to invest. "Nobody's a winner," he said.

He noted that Canada agreed to allow U.S. dairy farmers access to about 3.5 per cent of the domestic market as part of the last free trade deal, which represents a small number for the U.S. dairy industry but was significant for Canadian farmers.

He said he's encouraged to see Canadian politicians signalling their support for supply management, which he described as vital to Canada's food security and independence.

The Canadian Dairy Commission, a Crown corporation that manages Canada's dairy industry, noted in an emailed statement that the supply management system focuses on the domestic market and is therefore less susceptible to market fluctuations.

"While it is difficult to predict the full extent of the impact any action by the U.S.A. would have on the Canadian dairy sector, the (Canadian Dairy Commission), along with the industry and other government partners, has been examining the situation and developing various scenarios to ensure all tools and policies are in place to mitigate any impacts," wrote Philippe Charlebois, the commission's executive director for corporate services.

This report by The Canadian Press was first published March 11, 2025.

News from © The Canadian Press, 2025