Good morning. U.S. President Donald Trump wanted a trade war, and he got one. As markets struggle to make sense of his tariff threats and un-threats, we look at why the White House is also taking aim at one of Canada’s most sacred cows: Cows. (Okay, the dairy industry and the supply management system that protects it. But let me have this one.)

Borrowing: Bank of Canada Governor Tiff Macklem is widely expected to lower the bank’s trend-setting interest rate this morning, a move aimed at countering the economic slowdown posed by U.S. tariffs on Canadian goods. Follow our live coverage here.

Manufacturing: U.S. tariffs of 25 per cent on Canadian steel and aluminum were set to go into effect early this morning. Separately, Trump vowed yesterday to “permanently shut down the automobile manufacturing business in Canada.” The range of tariffs he is threatening could spell wider trouble on both sides of the border.

Real estate: Canada’s home building industry says the tariff chaos will slow new investment.

As the United States goes after Canada over dairy market access, federal and provincial leaders will have to decide whether our supply management is worth protecting, Nojoud Al Mallees writes.

What they’re debating is a system designed to insulate Canadian farmers from price volatility and ensure a stable domestic supply – a system that has endured for decades but remains a flashpoint in trade disputes and economic policy.

Milking a solution

In the early 1970s, Canadian farmers faced a brutal reality. They were squeezed by market volatility, low prices and the growing power of large food processors. Many small farms struggled to survive as prices swung wildly, often below the cost of production. Instability was a way of life – farmers never knew if the next season would bring prosperity or ruin.

At the same time, powerful food companies across North America wielded growing influence. These companies dictated terms and prices, often favouring large suppliers who could meet their scale demands. Many small farmers found themselves with little bargaining power, forced to accept prices that barely covered their costs – or even resulted in losses. The market was not only uncertain but also uneven, stacked against small independent Canadian farms.

And there was the looming force to the south. The U.S. agricultural sector was a giant – massive in scale, benefiting from targeted subsidies and capable of producing at costs Canadian farmers could only dream of. American farms had the advantage of size and efficiency, driving down costs and – ultimately – market prices. American products could easily overwhelm Canadian producers.

The sheer volume of U.S. production meant that if American products flowed freely across the border, some Canadian farmers could be swept away. Mike von Massow, a professor of food, agricultural and resource economics at the University of Guelph, said the disparity was staggering.

“There are more cows in Wisconsin than there are in all of Canada,” von Massow said in an interview.

The search for stability

Staring down these challenges, Canada introduced supply management systems that would change its agricultural landscape, first for dairy and then expanding to poultry and eggs. This approach set quotas for domestic production and imposed high tariffs on imports that exceeded agreed levels from various countries. (Levels that have increased over time as trade agreements, including the one Trump signed, have included concessions.) The goal was twofold: ensure Canadian farmers could sell their products at fair prices and provide a stable supply of essential goods such as dairy, poultry and eggs.

“By creating predictability for both farmers and consumers, it improved availability of those products,” von Massow said. The system not only stabilized farmers’ incomes but also smoothed out the cyclical nature of food prices. “If you look at food price inflation over the past 30 years, the rate of growth of food prices has been variable, but in the supply-managed sectors, it’s been much more steady.”

How the system works: quotas and control

Canada’s supply management systems are managed by national and provincial marketing boards such as the Canadian Dairy Commission and Chicken Farmers of Canada. These boards set production quotas, manage imports through tariff-rate quotas, and establish price controls to balance supply and demand.

Supporters say the system offers stability for farmers and predictable prices for consumers. Egg prices provide a recent example: In early 2025, U.S. egg prices spiked by more than 50 per cent due to an avian flu outbreak, while Canadian prices remained steady under supply management. By regulating production and shielding domestic supply from external shocks, the system prevents the extreme price swings seen in the open market. On the other hand, cheese is generally more expensive in Canada than in the U.S., which is objectively a bad thing.

Spilled milk

To be sure, supply management in Canada has its critics. Last October, The Globe and Mail’s editorial board argued (as it has many times over several decades ) that the system distorts the market, leading to higher consumer prices, inefficiencies and significant waste.

A study in Ecological Economics estimates that Canadian dairy farmers dumped 6.8 to 10 billion litres of milk between 2012 and 2021 – roughly 7 per cent of total production. Critics argue this waste, which could have fed millions, highlights inefficiencies in a quota system designed for a different era.

The Canadian Dairy Commission disputes these figures, calling milk dumping rare, but critics say the lack of publicly available data makes verification difficult. Food economists and others recommend reforms such as adjusting quotas to reflect modern consumption patterns – including the rise of plant-based alternatives.

Supply management is also criticized as a regressive tax, disproportionately hitting lower-income families who spend more of their income wealthier ones on essentials such as milk, poultry and eggs.

And last but not least: trade tensions. Critics argue that Canada has lost potential trade opportunities by keeping supply management (largely) off the table in discussions with partners such as Britain and the U.S.