International dairy trade is one of the most sensitive issues in Canadian agricultural policy. Canada protects part of its dairy market through supply management, but it still imports substantial volumes of cheese, butter, milk, cream, powders and other dairy products.
Those imports are governed by trade agreements and tariff-rate quotas, commonly called TRQs. CUSMA, the Canada–United States–Mexico Agreement, opened additional access to the Canadian market for several categories of U.S. dairy products.
This page explains what tariff-rate quotas are, how CUSMA governs dairy trade, why the United States has challenged Canada’s administration of those quotas and how international trade directly affects Canadian farmers.
What is a tariff-rate quota?
A tariff-rate quota allows a defined quantity of a product to be imported at a reduced or sometimes zero tariff. Once that volume is exceeded, a much higher tariff can apply.
The principle is therefore not to close the market completely. It grants a certain level of access to foreign products while limiting the amount that enters at the preferential tariff.
Under CUSMA, Canada committed to specific access volumes for U.S.-origin milk, cream, butter, milk powders, cheese, yogurt, ice cream and several other dairy categories.
Why do tariff-rate quotas matter to supply management?
Import controls are one of the three pillars of supply management.
Canadian producers limit output according to a national production target. That system would be difficult to maintain if unlimited quantities of foreign dairy products could enter the market at low tariffs.
TRQs are therefore meant to balance two objectives: meeting Canada’s trade commitments while preserving a predictable size for the domestic market.
What does CUSMA provide for milk?
CUSMA entered into force on July 1, 2020. In dairy, Canada agreed to provide additional tariff access to U.S. products.
For milk, the quota rises progressively. In the eighth year of the agreement, the scheduled volume reaches 51,005 metric tonnes, with further gradual increases afterward.
The agreement also allows up to 85% of the milk quota to be reserved for bulk milk used to make ingredients for further food processing.
For the 2026–2027 dairy year, Global Affairs Canada lists access of 51,005,000 kg under the CUSMA milk TRQ.
What other dairy products are covered?
CUSMA includes separate quotas for many categories, including:
- cream;
- butter and certain cream powders;
- milk powders;
- industrial cheese;
- cheese of all types;
- concentrated or condensed milk;
- yogurt and buttermilk;
- ice cream;
- whey;
- certain products made from natural milk constituents.
The volumes vary by product and generally increase over the agreement’s implementation period.
Who can import within these quotas?
This is where the system becomes more complicated.
A TRQ determines not only how much product can enter at the preferential tariff, but also requires rules for who receives the right to use that volume.
In Canada, quota allocations can be divided among processors, distributors, retailers, importers and other eligible groups depending on the product.
Why has the United States challenged Canada’s administration?
Since CUSMA took effect, the United States has repeatedly challenged the way Canada allocates some dairy TRQs.
The central disagreement has often been less about the total volume available than about how accessible those volumes really are to importers.
Washington has argued that Canada reserved too much quota for certain processor groups or used allocation methods that made parts of the quotas difficult to use.
Canada has changed its rules following an earlier panel decision, and a later challenge to the revised system was largely rejected by a CUSMA panel in 2023.
Can a TRQ be underused?
Yes. The fact that a volume is available on paper does not mean it will automatically be fully imported.
Quotas may be underfilled because of weak demand, uncompetitive prices, logistics, administrative rules, allocation timing or a lack of interested importers.
For 2026–2027, Canada also introduced a mechanism aimed at TRQs that remain below 60% utilization for three consecutive years.
Did CUSMA abolish supply management?
No.
The agreement reduced part of Canada’s protected domestic market by granting more tariff access to foreign dairy products, but it did not eliminate production quotas or over-quota tariffs.
Canada therefore continues to use supply management for dairy, poultry and eggs. CUSMA did, however, permanently reduce the share of the domestic market available exclusively to Canadian production.
How does CUSMA interact with other trade agreements?
CUSMA quotas do not necessarily replace access already granted under other agreements.
Canada also has dairy TRQs under World Trade Organization commitments, CETA with the European Union and the CPTPP.
In many cases, access granted under one agreement is additional to access granted under others, creating several separate windows into the Canadian market.
Does Canada actually import much dairy?
Yes. Trade data clearly show that Canada is not a closed dairy market.
According to Agriculture and Agri-Food Canada, Canada imported roughly $1.93 billion in dairy products in 2025 and exported about $560 million.
That left a dairy trade deficit of about $1.37 billion that year.
Why does Canada export less than it imports?
Supply management is designed first to serve the domestic market, not to generate large surpluses for export.
Canada does export dairy products, including whey, skim milk powder, cheese, yogurt and various ingredients, but exports are also affected by World Trade Organization rules and Canada’s commitments on subsidies and milk classes.
How do imports affect Canadian quota?
When a larger share of Canadian dairy demand is supplied by imports, that portion no longer needs to be produced domestically.
Within supply management, higher permanent import access can reduce the national production target or limit its growth.
This is why trade concessions directly affect the market available to Canadian farmers. For the production mechanism, see Dairy Quota in Canada.
Why are trade concessions often compensated?
Successive federal governments have introduced compensation and investment programs after granting additional market access in trade agreements.
The logic is straightforward: when a permanent share of the Canadian market is allocated to foreign products, Canadian farmers and processors lose part of the future growth they otherwise might have supplied.
Compensation does not change the fact that the market access itself is generally permanent.
Dairy trade and processing
International trade also directly affects processors.
Higher imports of cheese, butter or dairy ingredients can reduce demand for Canadian processing. Conversely, some processors may benefit from importing specialized ingredients or lower-cost inputs.
For more on this part of the system, see Dairy Processing in Canada.
Is dairy trade really “free”?
Not completely.
Canada uses TRQs and over-quota tariffs. The United States and European Union also use agricultural supports, insurance programs, direct payments, purchasing policies and regulatory mechanisms.
The debate is therefore rarely between a totally protected market and a totally free one. It is about the level of protection, the rules of access and how benefits are distributed among farmers, processors, importers and consumers.
Why does CUSMA remain such a major issue?
CUSMA includes a periodic review mechanism that keeps agriculture at the centre of North American trade relations.
Dairy remains especially sensitive because it combines three controversial issues: supply management, high over-quota tariffs and the administration of tariff-rate quotas.
The United States regularly seeks broader and easier access to Canada’s market, while Canada seeks to preserve the integrity of supply management.
Key takeaways
CUSMA neither completely closed nor completely opened Canada’s dairy market. It created additional TRQs that allow defined volumes of U.S. dairy products to enter Canada at reduced or zero tariffs.
The main disputes today concern the administration, allocation and real-world use of those quotas.
Canada remains a significant net importer of dairy products. Trade agreements, TRQs and international rules therefore directly affect the size of the market available to Canadian producers.
For the broader system, see Canada’s Dairy Sector.