By Stuart J. Smyth
June 3, 2025
The new Carney government will face a host of challenges, including trade, tariffs, innovation, and regulation. However, it must make agriculture a top priority if it hopes to solve the long-standing problem of supply management – an outdated, flawed, and costly system for producing dairy, eggs, and poultry products. This anti-competitive production model results in higher prices for all these products, which ultimately harms all Canadians. Supply management poses the greatest obstacle to Canada’s ability to negotiate new international trade agreements. As a trade-dependent nation, the inability to expand trade diminishes economic well-being.
Many things have changed in Canadian society over the past 50 years. We have traded our calculators and rotary phones for computers and cellphones. Jobs exist today – social media influencers, software programmers, genome technicians and the like – that people never envisioned a half-century ago. Technologies, occupations, and communications have all drastically evolved. However, supply management, a decades-old relic, continues to hold dairy, eggs, and poultry production in its stale and static grip.
Background to Supply Management
In the 1960s, agricultural markets, as well as global commodity markets, were vastly different than today. Price variability was more common, due to greater geo-political instability, rampant inflation, and the lack of rapid means of communication. During the early 1970s, markets experienced greater price shocks, which created market uncertainty that hindered investment and expansion planning. The market uncertainty especially hurt dairy, egg, and poultry producers because of their faster production timelines and greater product perishability.
To tackle the problems of price variability and uncertainty, the federal government enacted a series of anti-competitive policies within the agricultural sector. Ottawa rolled supply management out in phases, launching the first fully national system, for dairy production, in 1970. In 1972, the federal government brought in the Farm Products Marketing Agencies Act[1] to govern the dairy supply management system, as well as to manage the production of other sectors, with eggs following in 1972, turkeys in 1974, chickens in 1978, and chicken-hatching eggs in 1986. This act enabled the government to determine annual production levels for each commodity and to provide farmers with licences (quotas) to only produce that amount. The act restricted farmers from producing more than their allocated quotas. Surplus production often went to waste, as producers could not sell it to consumers at a lower price. The system spurred higher prices for all supply managed products.
This anti-competitive policy has provided price stability for dairy, egg, and poultry products during periods of high inflation and geo-political instability. For instance, Canada faced high inflation until the 1990s. In 1992, inflation finally dropped below 2 per cent annually (WorldData.info 2025). It remained at that level for three decades, until geo-political instability in 2022 sent it soaring.
As for supply management, it remains in place despite the current absence of many of the economic factors that spurred its original implementation.
Good governance requires changing policies as the economy evolves, and circumstances dictate. However, supply management has become a sacred cow in parts of Canada, politically untouchable and immutable. This must change. Despite the protests of the supply managed industries, the system harms all Canadians thanks to the artificially inflated prices we pay for these products.
Subsidizing economic inefficiency
Economic efficiencies drive the production of all products, so that production can take advantage of low-cost inputs, skilled labour, and market access. In the 1980s, the government subsidized commodity transportation, resulting in many of the beef feedlots and much of Canada’s meat processing industry to be located in southern Ontario. Due to subsidies that distorted free market economics, producers had to transport livestock, and some of the grain to feed them, from the Prairies to southern Ontario.
In the mid-1990s, many domestic subsidies ended as trade markets became more globally integrated and trade-distorting subsidies were phased out following the establishment of the World Trade Organization in 1995. This created opportunities to expand local grain uses, which led to increased beef feedlots and processing in southern Alberta. This expansion also benefited from an increase in water availability and irrigation for this area. According to Agriculture and Agri-Food Canada data, in 2024, there were eight beef processing plants located in Western Canada, compared to four in Ontario (Agriculture and Agri-Food Canada 2025a).
Subsidized dairy production results in economic inefficiencies that disadvantage consumers. The average size of dairy herds in the three Prairie provinces ranges from 183 in Alberta to 194 in Manitoba, with Saskatchewan in the middle at 189. The average dairy herd size in Quebec is less than half that, averaging just 83. Despite the efficiencies gained from larger herd sizes, Prairie farmers only account for 16 per cent of total dairy production, while Quebec farmers account for 37 per cent (Agriculture and Agri-Food Canada. 2025b). This is because quota is assigned by population, therefore Quebec and Ontario have the majority share of dairy production, despite Quebec’s population only accounting for 23 per cent of Canada’s total population (Statistics Canada 2025a). Yet with modern transportation logistics, fresh dairy products can readily move between sources of production and consumption. As an example, Wisconsin and Idaho are the second- and third-largest milk producing states for the US (Statista 2025).
Based on this evidence, abolishing supply management in Canada could lead to larger, more economically efficient dairy herds in the Prairies that would readily be able to supply larger population markets with products. Given that Prairie dairy herd sizes are more than twice the size of Quebec herds, this provides an opportunity for cost-efficient expansion, as well as for increases in the expansion of value-added milk processing activities, such as the production of a wide variety of dairy products like yogurt or specialty cheeses. Dairy herds require significant water resources, which are plentiful in the Prairies. Abolishing supply management would allow dairy production to transition to the Prairie provinces, like how beef feedlots shifted from Ontario to Alberta once economy-distorting subsidies ended. Ending supply management would create new opportunities for the efficient production of Canadian dairy products, which Canada could export to markets around the world.
These inefficiencies within the Canadian dairy industry are extremely costly. It is estimated that between 2012 and 2024, Canadian dairy farms wasted 6.8 billion litres of milk, worth nearly $15 billion, and which could have fed 4.2 million people annually (Elliot, Goldstein, and Charlebois 2025). On average, over this period, 6 per cent of all milk produced in Canada went to waste, never benefiting a single consumer (Agriculture and Agri-Food Canada 2025c). Dumping otherwise good milk on the ground due to quota constraints is bad enough. When you also add in the wasted water and feed used to produce this volume of milk, as well as the greenhouse gases emitted in the production of the wasted feed, it is an economic and environmental disaster. The hard truth is that a half-century of supply management has created a dairy industry that is inefficient, outdated, and wasteful.
The global movement to transform supply chains
The COVID-19 pandemic highlighted the urgent need to transform global supply chains. In its 2024 State of Food and Agriculture Report, the Food and Agriculture Organization calls for food supply chains to become more inclusive, sustainable, and resilient (FAO 2024). Supply management is not inclusive because it restricts entry into the industry and, thanks to the quota system, eliminates healthy competition.
Canadian supply managed agriculture lacks resiliency as shocks to the system result in higher prices. If feed or fuel costs rise, those increases are ultimately passed on to consumers. Additionally, high tariffs imposed after import quotas are reached disrupt trade and weakens supply chain resilience. As part of the anti-competitive practices at the core of supply management, the import of dairy, egg, and poultry products are artificially restricted as part of the efforts to support the sector’s inefficiencies. Through existing trade agreements with other countries, small volumes of supply managed products are allowed to enter tariff free. After these volumes are reached, excessively high tariffs are applied, resulting in no further imports of these products. This means that even though consumers wish to purchase these products, they are not available. Supply chain resiliency is about ensuring that production efficiencies benefit consumers, but this does not occur in Canada.
Under supply management, supply chains are often cumbersome and slow to adapt to changing circumstances. Transforming it into a nimble, modern agricultural enterprise will require innovation, economies of scale, and open entry and exit into the industry. Rather than actively sheltering Canadian dairy, egg, and poultry farmers, federal and provincial governments should remove the shackles of supply management and trust producers to innovate and transform their operations hard work and smart, efficient management.
Problems arising from supply management
Canadian dairy consumers are paying higher prices to subsidize small, inefficient Quebec dairies, while other dairies across Canada are dumping milk as they do not have enough quota to sell the full volume of milk they produce. Consolidation has occurred in every sector of the Canadian economy over the past 50 years and agriculture is no exception. There were an estimated 366,00 farms in Canada in 1971 (Statistics Canada 2025b), and only 190,000 by 2021 (Statistics Canada 2021). In a free-market economy, larger, more efficient operators purchase smaller, less-efficient businesses. However, in a supply managed economy, small, inefficient producers are subsidized and remain in business, preventing increased efficiencies from benefitting consumers. However, supply management is not able to prevent consolidation from occurring, as in 1971, there was 120,000 dairy farms (Canadian Dairy Information Center 2019), which accounted for 33 per cent of all farms in Canada and presently there are 9,250 dairy farms, which is less than 5 per cent of all farms (Charlebois 2025).
Making matters worse, higher dairy prices disproportionally hurt lower-income households. Prior to the pandemic, experts estimated that supply management cost every Canadian household between $300 and $444 more per year as compared to there being a free market for dairy, egg, and poultry production (Whalen and Fuss 2024). As an example, milk prices increase at least once per calendar year. Low- and fixed-income households find it incredibly difficult to offset the constant rise in the price of dairy products. This jeopardizes the health of young children, who require ample amounts of calcium for proper bone growth, as well as to help prevent other illnesses or conditions later in life (KidsHealth 2025).
Supply management also threatens other Canadian agricultural industries by acting as a major irritant during international trade negotiations. Many countries, including the United States, see Canada’s dogged protection of supply management as an unfair trade practice. For instance, during the 2015 negotiations that led to the Trans-Pacific Partnership (TPP), Canada agreed to make concessions regarding the amount of dairy products able to enter Canada tariff free equivalent to 3.25 per cent of the Canadian industry (International Trade and Investment 2025). Canada also made further supply management concessions during the negotiating process of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). It agreed to additional concessions as part of the renegotiation of the North American Free Trade Agreement, which resulted in the 2020 Canada-USA-Mexico Agreement (CUSMA). To compensate the supply management sector, the federal government gave dairy, egg, and poultry farmers nearly $5 billion in taxpayer revenue (Agriculture and Agri-Food Canada 2025d). This subsidy goes to less than 5 per cent of the roughly 190,000 farmers in Canada. Canadian crop, beef, and pork farmers do not receive any compensation when imports from other countries are cheaper than Canadian products. As an example, Canadian wholesalers can buy pork bellies, used for bacon, cheaper from Eastern European countries than they can from Canadian pork producers. Do Canadian pork producers receive any compensation for this? No, they do not.
To protect the Canadian supply management sector from international competition, import tariffs of more than 200 per cent are commonly applied, ensuring that none of these products are imported into Canada (see Table 1). This results in Canadian consumers either paying the higher price which includes the import tariff or not being able to purchase these products as the astronomical tariff rates prevent any import. Small quota volumes do exist, allowing for the import of supply managed products, such as specialty cheeses, but once the volume limit is reached, tariff rates are applied, resulting in no further imports paying a higher tariff rate. For instance, parmesan cheese imported under the CETA agreement faces a tariff of only 3.32¢/kg for the small volume that is allowed to be imported at this tariff rate. However, anything over that allotted amount faces a 245.5 per cent tariff, and not less than $5.08/kg. The Canadian supply management sectors are fundamentally opposed to allowing import quotas to rise, thereby preventing consumers from being able to purchase a wide array of food products at lower prices. Given the lack of free market entrepreneurism, there is next to no innovation occurring within dairy supply management that would facilitate greater Canadian production of specialty cheeses, for example.
Canada’s refusal to allow greater international competition in its dairy, egg, and poultry sectors hampers its ability to negotiate new trade agreements. It also ensures higher prices for Canadians while also limiting variety and choice.
The pro-supply management lobby is so powerful, it even tried to force Canada to guarantee to never open the sector to wider competition. In 2022, a Bloc Quebecois MP introduced a private member’s bill, Bill C-282 (An Act to amend the Department of Foreign Affairs, Trade and Development Act (supply management)), that seeks to ban future Canadian governments from making further concessions on supply management while negotiating trade deals. It is currently at the report stage in the Canadian Senate.
If it becomes law, Bill C-282 will place the interests of the small number of supply management farmers ahead of the 40 million other Canadians who must pay exorbitant prices for dairy, egg, and poultry prices. It will also end Canada’s ability to negotiate new trade international agreements.
Supply management is also a threat of sorts to the rest of the world. According to the International Dairy Federation, there is a looming global dairy shortage that by 2030 will reach a 30-million-tonne deficit (DairyNews.today 2025). In Canada, the lack of open market dairy production jeopardizes our ability to increase production and contribute to alleviating the global dairy shortage. This, in turn, could hinder Canada’s ability to deliver on its commitments to achieving the United Nations Sustainable Development Goals, especially the second goal which is to reduce hunger (United Nations 2025). In essence, Canada’s restrictive supply management system is contributing to global food insecurity.
Strategy for resolving the supply management crisis
Canada should act now to phase out supply management over the coming decade. It can do so by removing 10 percentage points of current total supply managed quota annually. Removing or reducing tariffs by 10 percentage points per year over the course of a decade has been a common approach used in previous trade agreements and is a proven sound strategy. Allowing new and existing producers to increase production based on free market signals will greatly reduce the waste and inefficiencies that have long existed within supply management production systems, such as the practice of dumping excess milk. Failure to remove supply management will mean that Canada will not be able to negotiate any new trade agreements or renegotiate any existing trade agreements. As a trade dependent nation, decreasing Canada’s ability to trade will lead to a continual, downward economic spiral. For Canadians to participate in the global trade economy, supply management must end domestically.
Canada’s supply management sector has consistently opposed acceptance of the WTO’s rules that came into effect in 1995. For the past 30 years, Canada has failed to comply with WTO requirements to end production subsides, while other countries have complied and witnessed farmer and consumer benefits. Australia deregulated supply management programs for milk production in 2000 (Berry and Oxley 2018). As a result, consumers saw milk prices drop by 12 cents per litre, while farmers benefitted from higher farmgate prices (the price farmers receive for their products before any additional costs such as transportation, processing, and retail mark-up are added) over this period. Australia’s example proves that supply management can be removed in ways that benefit both farmers and consumers. Australia now exports nearly 50 per cent of its dairy production, creating increased profitability and employment opportunities, compared to simply focusing on the domestic market.
The challenge facing Canadian politicians will be devising a way to dismantle supply management while causing the least economic disruption. They also need to ensure that tax dollars are not wasted compensating farmers in supply management production systems.
Government could readily enact the following policies and mechanisms:
- supporting supply management farmers wanting to either retire or exit the industry to be able to sell quota licences nationally, lifting provincial production restrictions, as this would allow smaller Quebec dairy farmers to sell their quota licences to larger Prairie dairy farmers and receive fair market value.
- providing a time-limited guarantee backstop for younger farmers that have used their production quota as collateral in securing financial loans or have borrowed money to purchase quota.
- ensuring financial institutions recognize the value of quota licences while the system is dismantled, while preventing them from immediately seeking repayment of loans due to the declining value of the quota.
- providing a 10-year guarantee to farmers to demonstrate increased economic efficiencies, thereby increasing their operating equity, contributing to reducing their financial risk, prior to official dismantlement.
Undoubtedly, some supply management farmers will not be able to compete in this new environment. This is a regrettable, but healthy, aspect of all agricultural sectors. Inefficient production practices raise the cost for all Canadians, but under a new free market production system, the loss of production from one farm will allow for other farmers to increase their production to ensure the market is not affected by any supply disruptions.
Removing the constraints imposed upon the production of dairy, egg, and poultry will allow for more producers to enter the industry and/or to expand their current operations. The increased production will contribute to ensuring that the price for these products is not subject to automatic annual increases, as is currently the situation. Increased production will result in higher employment in the sector – both on-farm but also in value-added processing facilities, such as cheese and yogurt for example.
Canadian consumers deserve lower prices and greater choices when it comes to dairy, eggs, and poultry products. As global geo-political issues impact trade, inflation, and food production, it will be vital for Canadian governments to work together to remove supply management and create a more vibrant, competitive, and prosperous agriculture industry.
About the author
Dr. Stuart Smyth is a professor in the Department of Agricultural and Resource Economics at the University of Saskatchewan.
References
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[1] In 1993, the federal government updated the act, which is now known as the Farm Products Agencies Act.
