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Walmart Inc. sells a gallon of milk for the equivalent of C$3.72 at its store near San Jose, Calif., but charges C$4.27 for four litres, roughly the same quantity, in Toronto.Christopher Katsarov/Globe and Mail

Canadians can expect to pay lower prices for milk, cheese and other dairy products if the United States wins greater access to Canada’s supermarkets in free-trade talks.

Canadian negotiators are willing to open up Canada’s milk market in an attempt to placate U.S. President Donald Trump and reach a favourable North American free-trade agreement, The Globe and Mail has reported. Mr. Trump said he will impose a 25-per-cent tariff on Canadian autos if the two sides cannot agree on a new deal, a step that would devastate Canada’s manufacturing sector and disrupt $140-billion in trade.

The $6-billion market controlled by Canada’s 11,000 dairy farms – mostly in Quebec and Ontario – is protected from cheaper imports of foreign milk by a system of tariffs, planned production and fixed prices. Tariffs of as much as 270 per cent keep out foreign milk, cheese, butter and other dairy products. Poultry and egg markets are managed in a similar way.

Ottawa’s dairy offer, expected to include more tariff-free imports on a range of products in addition to allowing in a grade of ultrafiltered milk used in food production, has angered backers of Canada’s dairy sector. Quebec Premier Philippe Couillard said on Wednesday there would be “serious political consequences” if Prime Minister Justin Trudeau dismantled safeguards for dairy farmers.

But Sylvanus Kwaku Afesorgbor, a professor at the University of Guelph, said a lack of competition means Canada’s dairy farms are inefficient and have no incentive to change that. It also means Canadian dairy consumers pay some of the highest prices in the world, he said.

Walmart Inc. sells a gallon of milk for the equivalent of $3.72 at its store near San Jose, Calif., but charges $4.27 for four litres, roughly the same quantity, in Toronto, according to the company’s website. The average U.S. retail price of a pound of butter is $4.50, according to U.S. government data. In Canada, a pound of butter at a No Frills supermarket costs $6.

Prof. Afesorgbor said allowing imports of cheaper U.S. dairy products would lead to lower prices in the dairy aisle, while forcing Canadian dairy farms to become bigger and more efficient – or be shut down. Canada’s supply-management system would buckle under the low-price competition and eventually fail, he said.

“Granting greater access to the U.S. would have an effect on the prices consumers pay for milk. There is no debate on that. It’s going to lead to falling prices for dairy products on the Canadian market,” he said by phone. “Consumers are going to be the beneficiaries.”

The powerful dairy lobby says the supply-managed system allows for farmers to make a good living while ensuring rural prosperity and providing Canadian consumers with stable prices for high-quality dairy products.

Critics of supply management say it artificially inflates prices while enriching dairy farmers. It’s a system that costs the average Canadian family $600 a year, according to the Canada West Foundation.

Prof. Afesorgbor, who specializes in agriculture, food and trade, said he has not done a full cost-benefit analysis of allowing in more dairy imports. But he said protecting farmers at the expense of consumers' food budgets makes no sense. “We have millions of consumers and we only have thousands of dairy farmers,” he said, adding bigger farms would be able to export, joining a global market dominated by New Zealand, Europe, the United States and Australia.

Canada imported $470-million in U.S. dairy products in 2017, compared with $149.5-million in exports. About 10 per cent of the Canadian market has opened up through trade with the U.S., Europe and the coming Trans-Pacific Partnership (TPP). The U.S. pulled out of TPP last year, and there are fears it could flood the Canadian market with inexpensive milk by rejoining the 11-country trade pact, effectively doubling any access won through NAFTA.

Bruce Muirhead, a professor at the University of Waterloo, dismissed the suggestion that the demise of the Canada’s supply management system could end World Trade Organization restrictions and allow dairy farmers to export milk on a large scale. He noted most dairy markets are domestic, and just 7 per cent of world production is exported.

He said tariff-free imports and a supply management system are incompatible, and that the end of Canada’s dairy regime would devastate parts of rural Canada, leading to closed farms and shuttered businesses.

“I realize dairy is such a tiny tiny proportion of the overall mix here that it’s almost silly in some ways to talk about it in the same breath as auto parts or cars but I still think supply management does speak to Canadian food security and food sovereignty,” he said. "I know a lot of people just pooh-pooh that and say we can buy stuff from the U.S. … [but] you can’t eat cars. You can’t drink cars.”

With files from Adrian Morrow and Robert Fife

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