Things to know about Canada's dairy supply management system

Things to know about Canada's dairy supply management system:

What is it: Supply management controls levels of milk production by tying it to Canadian consumer demand and limiting foreign competition through high tariffs. Similar systems also regulate production of cheese, poultry and eggs.

History: Canada established a national system in the early 1970s to stabilize prices and dairy producer incomes, although its origins can be traced to provincial marketing boards in place decades earlier.

Farms: The number of dairy farms has shrunk from 145,000 nearly 40 years ago to less than 13,000 today. The system supports 215,000 jobs and contributes about $19 billion to Canada's GDP and $3.6 billion in taxes.

Prices: The price for milk paid to the producers is based on the costs of production set by farmers, not the market. As a result, Canadians pay up to twice as much for milk than Americans. One litre of milk sold for $2.33 in Canada on average in August, according to Statistics Canada, compared to US$3.39 per gallon -- or C$1.20 a litre -- in the U.S., according to the U.S. Bureau of Labor Statistics. However, milk prices vary by province. Recent prices for filtered milk were about $5.49 for two litres in Quebec and $3.99 in Ontario. The Dairy Farmers of Canada point to reports suggesting that milk is on average only 27 per cent more expensive than in the U.S.

Subsidies: Canadian dairy farmers receive no direct government subsidies, while the United States pays about US$4 billion a year and the European Union 55 billion euro to their farmers.

Imports: Imports are limited through high tariffs. The system originally banned all imports, but that ran afoul of global trade rules. So now about five per cent of dairy products on Canadian shelves are imported tariff-free. Another 18,500 tonnes of cheese will be imported from Europe under a proposed trade deal. That will mean European cheese will rise to nine from five per cent of cheese consumed in Canada.

TPP: The Trans-Pacific Partnership deal among 12 countries would increase dairy imports by 3.25 per cent over five years, displacing about 250 million litres of Canadian milk. In exchange for lost income, Ottawa would compensate Canadian farmers and processors, including those in the dairy sector, $4.3 billion over 15 years.

Exports: Milk production caps limit export opportunities, especially to rapidly growing Asian markets. Global dairy export volumes have been growing by seven per cent annually, but the OECD projects that butter demand will increase 21 per cent from 2013 to 2022, cheese by more than 11 per cent and whole milk powder by 13 per cent. It said ending the system could see Canada add six to 12 billion more litres of milk annually and generate $1.3 billion in efficiency gains.

Quote: "We obviously would have preferred that no additional market access be conceded in the dairy sector....We have come a long way from the threat of eliminating supply management." Dairy Farmers of Canada president Wally Smith.

This is a corrected story. An earlier version had incorrect information on the cost to the economy of dairy quotas.