Opinion: Sacred cow: If supply management has to be killed, Canada's dairy industry will have to follow New Zealand's lead

Globe and Mail

04-04-2025

Gordon Pitts is a journalist and prize-winning author of eight books on Canadian business.
It's 3 o'clock on a March afternoon in a dairy farm on the South Island of New Zealand. Hordes of cattle are lining up for their second milking of the day, forming a black-and-white sea against the faded yellowing grass of the volcanic hills.
By the time the day is over, hundreds of cattle will have passed through the rotating circular milking system, their bulging udders fitted with octopus-like milking machines to squeeze out the white liquid that is the lifeblood of the national economy. Like workers at the end of their assembly-line shifts, the cattle linger a bit after they're milked, only to be herded out to pastures among the vines in this wine-rich section of the country's Marlborough region.
This is typical of a New Zealand dairy farm – a milking house, a cluster of small outbuildings and mobs of grazing cattle. But for someone like me, raised on a small dairy farm in Ontario, a familiar detail is missing: big barns. There is no need for protective housing for the cattle here, because they never have to go inside to be sheltered and fed. The cows can munch year-round on the evergreen pastures of a country where winters are gentle and most farms see little or no subzero temperatures or blowing snow.
That's a reflection of the great Kiwi advantage: one of the most consistently moderate climates on the planet, which underlies New Zealand's standing as the leading milk-producing country per-capita in the world. And the lower costs and higher output associated with that climate underpin a dairy superpower in which there are roughly the same number of milk cows as people – its human population is just 5.2 million – and where annual export revenues of NZ$25-billion (about $21-billion) dwarf those of the country's other industries.
'We are far from everywhere, but the climate for pastoral agriculture, and our soils, are definitely advantageous,' says Kimberly Crewther, executive director of the Dairy Companies Association of New Zealand, whose members account for 98 per cent of the country's dairy processing.
Tiny New Zealand's dairy juggernaut strikes fear in some much bigger countries, and its dominance fuels a continuing quarrel with an unlikely adversary: Canada. Kiwis and Canadians are friends and allies – Commonwealth colleagues with similar European settler legacies, shared grief and triumph from two world wars, and large Indigenous populations.
Economically, both are heavily dependent on primary industries, extracting resources from land and sea. But dairy divides them like no other issue. Last October, New Zealand escalated its trade dispute with Canada, first launched in 2022, which argued that Ottawa's dairy tariffs and quotas contravened the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
That squabble underlines an economic and cultural divide. New Zealand, with its minuscule home market, strides out into the global market as a militant free marketer without the aid of subsidies or other trade props. 'We protect our dairy industry by being driven to export,' says Peter Burke, a long-time farm journalist on the North Island.
Canada, meanwhile, fosters a highly regulated, internally protected regime of supply management, which cushions dairy farmers against income fluctuations by balancing domestic demand and production, administering prices and restricting imports. This is a system maligned by free marketers worldwide, none as loudly as their fellow dairy farmers and processors in New Zealand. But losing it would demand a serious realignment of Canada's dairy-trade strategy, by ramping up the need for product diversification and the aggressive pursuit of emerging markets for milk – markets where New Zealand is already well established.
Now, U.S. President Donald Trump is taking a wrecking ball to the whole global trading system, and our supply management regime for dairy – and also for poultry and eggs, though they get less attention – is firmly in his crosshairs. He specifically called out Canada for imposing hefty tariffs on American dairy products when he announced an array of levies on trading partners on what he called Liberation Day. Whichever party wins Canada's federal election will have to navigate this existential threat.
If our dairy regime is tossed away as a bargaining chip in the tariff wars, Canada's industry will look a lot like New Zealand's, but with the monumental exception that, as a big country with harsh seasonal swings, we lack New Zealand's climate advantage. Faced with a deluge of foreign – largely U.S. – imports, the Canadian dairy industry would be bound to shrink dramatically.
These are the conflicts and complications of the new trade order, in miniature. As they play out in this consequential election and well beyond, Canadians will have to ask whether, in mitigating the risk of damaging trade wars, they can accept many fewer family farms, less vibrant rural communities and a huge compensation bill to farmers and the industry – not to mention a supply of milk, cheese, butter and other products that is less secure and safe.
About a year ago, I took a driving tour of New Zealand, and as a former farm boy, there was much to admire. Travelling through that country is a delight for an incurable dairy-farm enthusiast such as myself. I drove through the North Island's prosperous, dairy-rich Waikato region, where closely packed crowds of Holstein cows (called Friesians in New Zealand) chomp away on luxurious pastures.
The scenes stirred up images of areas of Canada where dairy farms flourish, such as Quebec's St. Lawrence Valley, with its profusion of silos and narrow fields tumbling down the valley to the wide river. And it evoked memories of the Ontario farm community where I grew up – and where dairy farms have largely disappeared. But even as farm populations age and decline in both countries, dairy farming remains an outsized social and political force, and a repository of each nation's history and values.
As it happens, Mr. Trump's challenge to Canada comes at a time when our supply-management system is most relevant to the country's well-being and national pride. In the face of Mr. Trump's tariff onslaught, a groundswell of Buy Canada sentiment has erupted. Thanks to supply management, if you buy dairy products in Canada, you can reasonably expect them to come from farms and factories in this country.
Many Canadians also worry about imported dairy products at a time when food quality worldwide is compromised by additives, including growth hormones, and the fragility of supply lines has been exposed by crises like the COVID-19 pandemic – and now by the raging avian flu, which has crossed over to cattle populations.
New Zealanders counter that they ship milk products to 140 countries, and rigourously comply with the health-science standards of their customers, but if supply-management falls, can other dairy-supplying countries truly offer these assurances – particularly the U.S., as the Trump team dismantles many of its regulatory safeguards?
The latest chapter in the bovine wars centres on allegations by New Zealand – along with other trading partners – that Canada is effectively dumping low-priced surplus milk on world markets. The Kiwis also claim that Canada is side-stepping its commitments to open larger segments of its domestic market, and contend that Canada indulges in a kind of whack-a-mole game, complying with the rules in one product area while transgressions pop up in another.
But surely Canada's exports are a drop in the global milk pail, at merely half a billion dollars, compared with New Zealand's $20-billion-plus in annual shipments.
Yet Ms. Crewther, of the Dairy Companies Association of New Zealand, argues that the global dairy market is very thinly traded, and relatively minor amounts of distorted trade can have a magnified impact. She urges Canadians to see the issue in New Zealand's context as a small trading nation: 'Dairy is a big part of what we trade. It's one in every [NZ]$4 that New Zealand earns from trade and that supports, across our country, economic activity in regional communities,' she said.
Ms. Crewther alleges that Canada's policies have a 'beggar-thy-neighbour' effect on New Zealand exporters, while elevating food prices for Canadian consumers. That trade-off – higher prices versus farm stability and food security – has been generally accepted in Canada for decades, but in the face of surging grocery costs and a broader affordability crisis, that social contract has been tested in recent years.
The Dairy Farmers of Canada website makes the case that 'supply management is a balanced agricultural system that provides peace of mind to farmers and consumers.' But New Zealanders want Canadians to ask: is it worth it? If indeed Canada needs to protect its food supply through supply management, Ms. Crewther appeals for us to 'find a way to do that without violating the spirit and intent of world trading rules.'
Of course, all economic disputes ultimately become political. Supply management is sacred in rural Quebec and Ontario, and all major political parties pledge their support of the system, even if their resolve is not entirely trusted. A Bloc Québécois private member's bill, which was being considered by the Senate when Parliament was prorogued, was aimed at blocking trade negotiators from bargaining away supply management's bulwarks; when politicians return after the federal election, and as Mr. Trump's tariff war rages on, that legislation will surely emerge again.
For New Zealanders, watching closely as the bilateral tensions between Canada and the U.S. play out, there is uncertainty about how the conflict will affect them. After all, while lower barriers to trade may be beneficial, a wide and growing trade war, even in the short term, would be dangerous for their small trading country.
For Canada, though, the stakes are always much higher than the threat from New Zealand. The great fear is always being overwhelmed by unrestricted dairy imports from the massive American industry next door, which is highly subsidized. If today's Buy Canadian fervour abates, and supply management is eventually weakened, the Americans will be at the gates.
All this fuss about dairy might come as a surprise to urban Canadians most familiar with New Zealand products through its popular exports of wine. The country's much-admired sauvignon blanc is a popular entry on Canadian liquor store shelves, and wine is certainly a big export generator for New Zealand, with NZ$2.5-billion in annual exports (or about $2-billion). But that's only one-tenth the amount it earns from dairy shipments.
In the Marlborough region, dairy farms are neighbours to the country's big viticulture names: Stoneleigh, Oyster Bay, Wither Hills. Big swaths of the region are being subsumed in a grape monoculture, and some dairy farmers have sliced off pasture land to grow grapes. The juxtaposition creates breathtaking photo-ops for tourists: herds of cows splayed against snow-capped mountains, fjords and lush vineyards.
Sheep are of course an iconic presence too, particularly on the South Island, with New Zealand wool and lamb renowned around the world. But although sheep are still very visible on the hillsides, wool is locked in a downward spiral, and New Zealand lamb, while popular, doesn't come close in economic weight to the white gold.
Dairy has been part of the New Zealand fabric since the early 1800s, when the missionary and colonizer Samuel Marsden transported a herd of Durham cows – dual-purpose milk and beef producers – to the new British colony. As in Canada, much of the industry developed as a series of co-operative cheese, cream and milk factories – small outfits that were collectively owned by local farmers. But this small co-op model gradually declined in the face of the forces of economic efficiency. Then, in the late 20th century, the industry confronted a couple of seismic shocks. In 1973, Britain joined the European Common Market, thus ending the regime of Commonwealth preferences, and in the mid-1980s, New Zealand's government triggered an economic big bang, when deregulation of the economy kicked the props out from under the dairy industry.
Without the lifeline of tariffs or subsidies, the industry continued to consolidate the little dairies, cheese factories and creameries. The culmination was the 2001 creation of Fonterra, a massive co-op of more than 10,000 farmer-shareholders that controls more than 90 per cent of the country's dairy production. Fonterra has had its ups and downs, but it remains a colossus; it is New Zealand's largest company, and one of the largest dairy companies in the world.
In short, New Zealand has created a national champion to lead its assault on global markets. With its dominant roles in milk buying, processing and marketing, Fonterra has inordinate power in the international supply chain. The Fonterra presence is everywhere in the country, from the roadside signs announcing a given farm as 'A Proud Fonterra Farmer' to the massive processing plants that emerge like Black Forest castles in the bucolic countryside.
For example, a rustic factory in Hautapu, on the North Island, started processing milk in 1884; it has since been replaced by a sprawling forest of tanks, tubes and computer-controlled manufacturing, as well as laboratory gear – a testimony to Fonterra's stature as a global R&D leader. This new factory in the heartland of dairy, which can handle up to 3.5 million litres of input a day, bills itself as the headquarters of Fonterra's protein and cheese technical teams. And while it produces mainstream cheddar while meeting the growing appetite for organic cheese and more exotic styles such as Edam, the plant's growth potential is also built on protein byproducts of milk, such as lactoferrin, which is highly sought after in Asia and is used in an array of items, from infant formula to health foods and yogurt.
The Fonterra infrastructure feeds on an extensive network of farms, including some that are part of larger land-owning complexes. One dairy farmer I visited owns several pieces of land, which in total support about 2,000 cows. One of these acreages is contract-milked by a farming couple, who share the proceeds 50/50 with the landowner. It's a common relationship in New Zealand, where farmers often own multiple properties.
The average dairy farm milks about 450 cows, as much as three times the average Canadian herd. (Canadian statistics vary among sources, but my arithmetic based on Agriculture Canada's 2023 numbers suggests about 145 cows per herd.) Critics contend that Canada's industry, protected by supply management, has failed to create incentives to raise productivity through expansion and modernization.
And yet, the Canadian farming numbers continue to decline. Six decades ago, the Eastern Ontario township where my sister and brother-in-law once farmed could boast 106 suppliers to the local cheese factory, many with 20 to 30 milking cows. There are no milk suppliers in the township today. The factory is gone.
I was part of that relentless drift of young people off the farms which has been shared by both countries. My father bitterly opposed the introduction of supply management in the 1970s because the milk-supply quotas restricted his sense of freedom. Yet the system also offered more income certainty, and quotas were a financial asset he could sell to ensure a viable retirement income for himself and my mother. Looking back, I can see that income stability helped underwrite my continuing education – which meant that I did not return to the farm – and my parents sold those quotas to another expanding family farm.
The relative prosperity of Canadian dairy farms, sustained by supply management, has allowed the gentle but inevitable consolidation of the industry. Consider that Canada boasted 145,000 dairy farms in 1971; today, there are fewer than 10,000, yielding 25 per cent more milk from many fewer cows. Amid the brutal economics of consolidation, a lot of industries would kill for such productivity gains.
The dairy sectors in Canada and New Zealand face common challenges, often from environmentalists alarmed at gaseous emissions from farting and belching cattle. Kiwi producers have also encountered heavy criticism over effluent and water flowing from the milking process. Cows defecate a lot and the stuff has to go somewhere, and the country's rivers have been a dumping ground. Dairy processing generates wastewater issues, too.
Around the country, you sometimes hear the epithet 'dirty dairy' applied to the industry. It's an outdated image, Ms. Crewther says, as the industry has risen to the challenge, with farmers and processors investing heavily in control measures. She cites the 27,000 kilometres of fencing erected to protect the country's rivers.
But a larger issue looms: The industry worldwide must contend with an uncertain future for milk consumption with plant-based substitute products on the rise. Kiwi producers find common ground with the Canadian milk industry in stating they supply a superior nutritional product. But in time, the dairy debate may lose its intensity as cows' milk continues its decline as a factor in global diets.
Meanwhile, New Zealanders have experienced rising sales in emerging South Asian markets such as Vietnam, Indonesia and Thailand, and with the rise in demand for protein products for the pharma industry. If Canada's milk sector is to lose supply management and still survive as even a shell of itself, it will need to shift to such an export mentality and battle for these remaining growth markets – even while its home base is under attack.
The biggest market of all is China, which is by far New Zealand's largest foreign dairy customer. While New Zealanders seem relaxed about China's one-third share of its export trade, they do express some nervousness that their giant partner may be taking a more direct role in the dairy industry. In 2019, when the big Westland co-op on the South Island faced a financial crisis, it was put up for sale, and the Chinese company Yili grabbed it from under Fonterra's nose. The Westland plant looms large over the picturesque west-coast town of Hokitika, a reminder of New Zealand's increasing interdependence with the Asian superpower. In the current geopolitical climate, that Chinese relationship can be both fruitful and fraught, as Canada's canola farmers have learned. We will encounter similar stress points elsewhere in the economy too, depending on how Ottawa handles the pressures from New Zealand and other trading partners to dismantle its dairy protection.
Supply management has served the country well. But I am sadly resigned to the reality that the Canadian government will bend, and the current level of support is doomed. Our surviving farmers and processors will have to become more like New Zealand's plucky band of free traders, but without the salutary benefits of a benign climate. We may know soon whether Canada can measure up to our Commonwealth compatriots – or whether our farms and factories will drown in a flood of American milk.