What CUSMA changed for Canada's supply-managed farms

When the Canada-United States-Mexico Agreement replaced NAFTA on 1 July 2020, most of the public argument in Canada was about autos, steel and dispute settlement. For dairy, poultry and egg farmers, the deal mattered in a different way. It did not end supply management, which survived intact. But it opened a new slice of the Canadian market to American product, removed a pricing tool the dairy industry had built only a few years before, and put a ceiling on some Canadian dairy exports, a type of commitment Canada had not made in a trade deal before.

CUSMA was also the third deal in a short span to chip at supply-managed markets. To see what it changed, it helps to take the deals in order.

Before CUSMA: the starting point

Supply management rests on three supports: production quotas matched to Canadian demand, prices set with reference to farm costs, and import controls that keep foreign product from filling the gap. Since the World Trade Organization agreements took effect in 1995, those import controls have taken the form of tariff rate quotas. A set volume of each product enters at a low tariff, and anything over it faces tariffs high enough to stop most trade. A walk through how Canada's dairy quota system works covers the domestic side.

Every new tariff rate quota granted in a trade deal is milk, chicken or eggs that Canadian farms no longer supply. Since quota is set to match the domestic market, extra imports show up on farms as slower quota growth or, in a flat market, smaller allocations than there would otherwise have been.

The deals in order

CETA, with the European Union

The Comprehensive Economic and Trade Agreement was provisionally applied from 21 September 2017. For supply management its main effect was on cheese: new European access of 16,000 tonnes of fine cheese and 1,700 tonnes of industrial cheese, phased in over several years. Cheese is the dairy product where European exporters are strongest, and the new quota went straight at the specialty counter where Canadian artisan cheese makers sell.

CPTPP, with Pacific partners

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership entered into force for Canada on 30 December 2018. It granted access across a range of dairy products, commonly described as a little over 3 per cent of the Canadian dairy market, along with new quotas for chicken, turkey, eggs and broiler hatching eggs. The United States had left the original Trans-Pacific Partnership before it took effect, so American exporters did not share in this access.

CUSMA, with the United States and Mexico

That gap is part of what CUSMA filled. Signed on 30 November 2018 and in force from 1 July 2020, it gave the United States its own set of tariff rate quotas, separate from those in the CPTPP.

What CUSMA changed

New quotas reserved for American product

The dairy access in CUSMA is usually described as about 3.6 per cent of the Canadian dairy market, spread across more than a dozen product categories including milk, cream, butter, cheese, skim milk powder, yogurt and whey. Each quota grows over a phase-in period. For skim milk powder, for example, the quota reaches 7,500 tonnes in the sixth year and then rises by 1 per cent a year for a further 13 years.

Poultry and eggs got quotas too:

These quotas come on top of Canada's existing WTO commitments, some of which American exporters already used.

The end of milk Class 7

Canada sorts milk into classes by end use, and each class carries its own price. In 2017 the dairy industry introduced Class 7, a national class that priced milk ingredients such as skim milk powder and milk protein concentrates close to world levels. The aim was to give Canadian processors a reason to use domestic skim milk solids, which are produced in surplus when butter demand is strong, instead of importing ingredients. American exporters of milk protein concentrate saw their Canadian sales fall and complained.

Under CUSMA, Canada agreed to eliminate Classes 6 and 7 within six months of entry into force, and to price the components of certain milk ingredients by reference to an agreed American price. The skim solids did not disappear. They had to be sold through other channels, often at low prices, which is one of the less visible costs of the deal for dairy farms.

A ceiling on some dairy exports

CUSMA also set thresholds on Canada's exports of three product groups worldwide, not only to the United States. Above each threshold, Canada must collect an export charge. Canada put the charges into effect through federal regulations.

The reasoning on the American side was that Canada's surplus skim solids were reaching world markets at prices made possible by a protected domestic market. The effect is to limit how far Canada can grow dairy ingredient exports, even into third countries. For a processor weighing a new drying plant or an infant formula line, the thresholds are a hard number in the business plan.

Two disputes over how quotas are handed out

A tariff rate quota is only as useful as the licence to use it. Canada allocates its dairy quotas through import permits issued by Global Affairs Canada, and how it divides them up became the first dispute brought under CUSMA's state-to-state process.

The United States argued that Canada was reserving most of each dairy quota for processors, who had little reason to import products that competed with their own. A panel's final report, delivered on 20 December 2021 and made public in early January 2022, agreed that reserving quota pools exclusively for processors was inconsistent with CUSMA. It also confirmed that Canada remained free to choose its allocation method, so long as it did not shut out eligible applicants.

Canada replaced the pools with a new allocation policy in May 2022, giving out quota on the basis of applicants' market share and opening eligibility more widely. The United States challenged the new approach as well, requesting a second panel in January 2023. That panel's report, made public on 24 November 2023, found in Canada's favour on all claims, and Canada was not required to change its measures.

The pair of rulings shows both the reach and the limits of a trade panel. It can tell a country that a rule breaks the agreement. It cannot force anyone to import more cheese, and fill rates on several dairy quotas have stayed well below the volumes available.

Compensation programs

The federal government paid compensation to supply-managed farmers for market access granted in all three deals.

For dairy farms, the Dairy Direct Payment Program delivered $1.75 billion for CETA and CPTPP, with payments made from 2019-20 to 2022-23 on the basis of each farm's quota holdings. A further $1.2 billion was set aside for CUSMA impacts, to be paid over six years from 2023-24 to 2028-29. Poultry and egg farmers and dairy processors received separate investment programs, generally structured as cost-shared funding for equipment and facilities rather than direct payments.

A worked example on one farm

The figures here are illustrative round numbers, not data from any real farm.

Take an illustrative Ontario dairy farm shipping 800,000 litres of milk a year. Suppose, to keep the arithmetic simple, that the CUSMA dairy quotas eventually displace about 3.6 per cent of Canadian production, spread evenly across all farms.

• 3.6 per cent of 800,000 litres is 28,800 litres a year.
• At an illustrative blend price of $0.85 a litre, that is about $24,500 of milk revenue a year that the farm would otherwise have earned.
• Over ten years, before any growth in the market, the figure passes $240,000.

In practice the effect is less tidy. Canadian demand grows, so quota usually keeps rising, only more slowly than it would have. Some quotas go unfilled, so the real displacement can be smaller than the headline percentage. The loss of Class 7 and the export thresholds add costs that do not show up in a share-of-market number. And compensation payments, while real, are tied to quota held at a point in time, so a farm that buys quota later does not receive them for the market it effectively lost. The pressures on Canada's supply-managed dairy sector were building well before CUSMA, and the deal added to them rather than starting them.

What comes next

Two things are on the calendar. First, CUSMA provides for a joint review by the three countries at its sixth anniversary, on 1 July 2026, when each must say whether it wants to extend the agreement's term. Dairy access is widely expected to come up again, as it has in every recent negotiation with the United States.

Second, Parliament has debated whether to bar future negotiators from offering any more supply-managed access. A private member's bill to that effect passed the House of Commons in 2023 but died when Parliament was prorogued in January 2025, leaving the question for the new Parliament.

For farm families trying to plan, the most useful figure is not the 3.6 per cent. It is the fill rate on each quota and the volume of skim solids each province has to move at low prices, two numbers that show where the deal's costs actually land.