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The world wants Canada to scrap supply management, but does it make sense?

Pros & cons of Canada’s supply management system
While Ottawa is fully supportive of Canada's supply management system, others want to get rid of it. Global National's David Akin explains why.

It has been blasted by United States President Donald Trump, caused major headaches for trade negotiators and even drawn herds of cattle to Parliament Hill, but Canada’s approach to its dairy industry has remained largely unchanged for decades.

Canadian farmers say the supply management system, which imposes sky-high tariffs on imported dairy products, is necessary to avoid overproduction. They’ve actually argued that it doesn’t go far enough to protect them from outside incursions.

Conversely, countries like New Zealand, Australia and the U.S. say supply management unfairly prevents access to Canadian markets, and should be dismantled for good.

READ MORE: With new executive order, Trump could weaken NAFTA before he ‘tweaks’ it

As America gets set to launch a fresh set of trade negotiations with Canada and Mexico, Trump has made it clear that what he views as “one-sided” deals in the dairy industry have to go.

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According to Sylvain Charlebois, dean of the faculty of management at Dalhousie University and a leading expert on food distribution, Canada may have little choice in the matter.

“This was predictable. We are the only industrialized country in the world with such a system,” Charlebois said.

“The concern that I have is that changes are now likely to occur under somebody else’s terms. We’re not the master of our own destiny … we should have been thinking about this 20 years ago.”

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Less than a year ago, the Trans-Pacific Partnership (TPP) trade agreement came close to dealing a blow to supply management, as Canada agreed to open the dairy market — just a crack — in order to have its own terms met at the negotiation table.

WATCH: Will dairy spark trade war between U.S. and Canada?

Will dairy spark trade war between U.S. and Canada?
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That deal is now on hold, but Canada still faces pressure via a new trade pact with Europe (CETA), and will almost certainly be feeling the heat from the U.S. during the re-negotiation of NAFTA.

“Frankly I don’t think Mr. Trump knew of supply management when he got elected in November, and just recently he read about it and probably felt that it was not in compliance with his own (free market) beliefs,” said Charlebois.

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READ MORE: Why did Donald Trump attack the Canadian dairy industry?

So if the trade walls do come down, what would that mean for Canada’s dairy producers, or for the average consumer?

“It would be certainly very scary,” said Debbie Mullin, who has been operating a dairy farm in New Brunswick since the mid-1980s.

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Mullin said she’s not nervous “in the short term,” because the Canadian government has shown it supports the supply management system and has made that clear to Trump’s administration.

On Tuesday night, Canadian ambassador to the U.S. David McNaughton sent a letter addressing U.S. concerns about dairy.

“But at the back of my mind, a little bit, there’s always that little ‘what if?’” Mullin said. “Mr. Trump has done some amazing things, and you never know what might happen.”

Supply Management 2.0?

If supply management is dismantled all at once, predicted Charlebois, it would likely result in a complete “collapse” of an unprepared Canadian industry. That’s why he’s advocating for a gradual reform of the existing rules — a “supply management 2.0” rolled out over the next two decades.

That would involve changes to how pricing is calculated at the Canadian Dairy Commission, Charlebois said, and then Ottawa would need “to set a clear schedule for tariff reductions over the next 18 to 20 years” to make it more affordable for foreign producers to bring their products to Canada.

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Depending on how quickly this happens, the federal government might need to look at compensation for Canadian dairy producers.

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Spicer says Trump looks forward to following up on Canadian dairy industry remarks
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The TPP deal, for example, was accompanied by $4.3-billion in federal subsidies aimed at softening the blow to dairy, chicken and egg farmers. That’s a financial burden which would be passed on to taxpayers.

As for prices at the cheese counter and in the milk aisle, Charlebois said the common wisdom is that opening up the market would mean lower costs for consumers as competition increases.

“It will benefit consumers just because we’ll have access to more variety,” he noted. “We don’t know for sure what’s going to happen to prices, to be honest.”

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Prices may drop in the short-term, he said, but when places like New Zealand and Korea did away with supply management, prices actually went up after about five years.

WATCH: Trump targets Canadian dairy farmers outlining his Buy America plan

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Back on the farm, Mullin said she wouldn’t welcome a wide-open market, especially with the glut of milk being produced south of the border. But it would be easier to adjust if her farm also got equal access to the United States.

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“We can probably ramp up and milk some more cows,” she said. “It wouldn’t be the end of the world, but … it would be a very nervous time.”