Farmers Forum staff
OTTAWA — Allowing Canada’s grocery retailers to import American cheese directly onto their shelves might satisfy U.S. trade demands, but it could severely undercut Canadian dairy processors and eventually squeeze Canadian dairy farmer revenues, according to a new report by the C.D. Howe Institute.
In the working paper “A Slice of the Market: Canada-US Tensions over Cheese Import Permits,” author Al Mussell, Fellow-in-Residence at the Institute, warns that overhauling Canada’s Tariff-Rate Quota (TRQ) import allocation system under U.S. pressure carries steep risks for the nation’s supply-managed dairy sector.
The dispute stems from Washington’s dissatisfaction with how Ottawa manages cheese imports under the Canada-United States-Mexico Agreement (CUSMA). Currently, Canada allocates the vast majority of its low-tariff import permits to domestic dairy processors. The U.S. argues this system restricts trade and discriminates against American exporters. It wants an allocation model similar to Canada’s Comprehensive Economic and Trade Agreement (CETA) with the European Union, which grants a wider share of import quota directly to Canadian retailers and distributors.
CUSMA, which the Trump White House signed in 2018, leaves American cheese imports in the hands of Canadian processors. U.S. officials and other critics complain that these processors face an inherent conflict of interest: As domestic manufacturers, they lack incentive to maximize imports or promote foreign dairy products that directly compete with their own production, a contradiction recently highlighted by the Globe and Mail editorial board.
While Ottawa may be tempted to compromise under the pressure of additional U.S. tariffs, Mussell argues that changing the rules to favour retailers could permanently distort market power within Canada.
“Giving retailers greater access to imported US cheese might provide more opportunities for US exporters, but it would also give large grocery chains even greater leverage over Canadian processors, which already face pressure from a concentrated retail market,” the Rockwood, Ontario-based analyst warns.
Because processors face stiff market pressures from dominant grocery chains, they cannot absorb lower margins indefinitely. Mussell stresses that these financial losses would ultimately trickle down to dairy farmers: “These costs are unlikely to reside permanently with Canadian dairy processors and eventually would be passed back to farmers.”
The U.S. particularly wants more market access for higher-value, premium U.S. cheese through Canadian retail channels, according to Mussell.
He notes that while Canada could adjust import quotas without violating Bill C-202 (which prohibits negotiating increases to import quotas or tariff reductions), buckling to Washington’s demands sets a dangerous trade precedent and undermines trade stability.
“The bigger issue is what this means for Canada-US trade more broadly,” he says. “If Canada concedes an arrangement that the two countries negotiated because of the threat of tariffs… it could set a troubling precedent for the stability and predictability of our trade relationship.”
