U.S. ITC investigating dairy protein dumping allegations against Canada’s supply management system

Canada’s supply-management system is once again under fire, as the U.S. trade commission begins an investigation into alleged dumping of low-priced dairy proteins into global markets.

Hearings started last week for the investigation by the U.S. International Trade Commission. The ITC will examine claims that Canada’s supply-management system – which sets prices for dairy products and restricts imports – is disrupting global markets.

The world’s major dairy exporters – a short list of countries that does not include Canada – are scrambling to find new markets for a growing mountain of dairy proteins, which come from raw milk. But dairy industries in the U.S., Australia and New Zealand say Canada’s supply management allows the country’s processors to export dairy proteins for cheaper than they could in a free market.

“It just doesn’t make sense that a country with one of the highest prices of milk globally is exporting these products at the lowest prices internationally,” said Shawna Morris, executive vice-president for trade policy and global affairs with the National Milk Producers Federation and the U.S. Dairy Export Council, in an interview.

She added that “there seems to be no limit on Canada deciding to simply continue to use the global markets as its disposal valve.”

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Canada, in its submissions to the ITC investigation, argued that supply management ties dairy production to national demand. Canada said it simply doesn’t have the production volumes required to export enough to distort international markets.

“Canada is too small and too focused on satisfying domestic demand to be an important competitor in global markets,” the country’s executive summary says.

The ITC investigation is expected to conclude by March, 2026, a few months before the United States-Mexico-Canada Agreement is up for review in July.

Data from the federal trade database demonstrate that Canadian exports of dairy proteins have significantly increased over the past decade. The data suggest that Canadian exporters might be including proteins in other products to avoid export controls, which the U.S. dairy industry says is a bad faith move that breaches trade agreements.

Raw milk can be turned into products high in butterfat, such as cheese, for which there is high and growing consumer demand. After the fat is removed from the milk and the resulting substance is dried, a powder containing protein, lactose and mineral components remains. This is called non-fat dairy solids, or dairy proteins.

When raw milk is processed, roughly two kilograms of milk solids are created for every kilogram of butterfat. It is used as an ingredient in baking, confectionery, infant formula and as a protein booster for products like fortified milk, Greek-style yogurt and protein-enriched cheeses.

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After the cows are milked, raw milk is pasteurized to make it safe for human consumption. It is heated to 72 C then cooled down to 4 C.

CONCENTRATION AND DEHYDRATION

Milk is sent to heated chambers and later drying towers where it loses its moisture. What remains of the milk is powder. It takes 10 ounces of milk to produce one ounce of powder.

To ensure that the powder is easily disolvable in water, soy lecithin is added. Before packaging, the powder goes through quality testing to ensure safety and freshness.

THE GLOBE AND MAIL, SOURCE: WONDASTIC TECH

After the cows are milked, raw milk is pasteurized to make it safe for human consumption. It is heated to 72 C then cooled down to 4 C.

CONCENTRATION AND DEHYDRATION

Milk is sent to heated chambers and later drying towers where it loses its moisture. What remains of the milk is powder. It takes 10 ounces of milk to produce one ounce of powder.

To ensure that the powder is easily disolvable in water, soy lecithin is added. Before packaging, the powder goes through quality testing to ensure safety and freshness.

THE GLOBE AND MAIL, SOURCE: WONDASTIC TECH

CONCENTRATION AND

DEHYDRATION

After the cows are milked, raw milk is pasteurized to make it safe for human consumption. It is heated to 72 C then cooled down to 4 C.

Milk is sent to heated chambers and later drying towers where it loses its moisture. What remains of the milk is powder. It takes 10 ounces of milk to produce one ounce of powder.

To ensure that the powder is easily disolvable in water, soy lecithin is added. Before packaging, the powder goes through quality testing to ensure safety and freshness.

THE GLOBE AND MAIL, SOURCE: WONDASTIC TECH

The total annual global trade of the two biggest dairy protein products – non-fat dry milk and skim milk powder – is two million tonnes. The U.S. is the largest single country exporter, shipping more than 700,000 tonnes annually to markets in Southeast Asia, Latin America and the Middle East, among others. The European Union and New Zealand are the other two largest exporters.

After decades of stable growth in demand for dairy proteins, global demand started to plateau in 2021, as China shored up milk production. New Zealand – dependent on the Chinese markets – sought buyers elsewhere and cut into U.S. sales in Southeast Asia. U.S. market share fell to 33 per cent in 2024 from 44 per cent in 2020, according to data provided to The Globe and Mail from the U.S. Dairy Export Council.

This crunch is what makes Canada’s trading practices problematic, said Ms. Morris of U.S. Dairy Export Council.

The supply-management system ties Canada’s dairy production to national demand for butterfat. But in Canada, like elsewhere, demand for butterfat products such as cheese has increased, while the national demand for milk solids had not kept pace, claimed the U.S. Dairy Export Council in its pre-hearing submissions to the ITC.

Instead of curtailing domestic production and importing U.S. milk – as the industry south of the border has long wanted – Canada instead exports these dairy proteins overseas. And these exports are kept artificially low priced, Ms. Morris said.

Under supply management, prices for dairy products are set by the Canadian Dairy Commission, a Crown corporation. The CDC pricing mechanism keeps dairy prices above production costs for most products. Price control, production limits and import controls are the three core tenets of supply management, a system designed in the second half of the 20th century to keep farmers in business.

However, not all dairy products are priced the same way. The CDC prices certain dairy products lower. In particular, those used as ingredients. This is set in part according to prices in the U.S. (designed to keep manufacturers of food which requires dairy ingredients from leaving to the U.S., where prices can be around 20 per cent to 30 per cent cheaper.)

The losses incurred from these low prices are cushioned by the high prices for the rest of the dairy products, the U.S. argued in its submissions to the ITC. And the low-priced products are exported globally, with the U.S. being the biggest destination.

Last year, Canadian export prices for skim milk powder and non-fat dry milk were US$2,664 per tonne, according to the U.S. Dairy Export Council. Exports from New Zealand, the EU and the U.S. range from US$2,700 to US$2,850.

This is a significant price difference for dairy trade, Ms. Morris said, adding that products are thinly traded. Small shifts in supply – even just a few percentage points – have an outsized impact on pricing.

A few years ago, Canada relented to the demands of its trading partners and agreed to limit exports on skim milk powder, milk protein concentrate and infant formula.

But the measures did little to control Canada’s exports, Ms. Morris said, arguing that Canadian dairy processors simply started adding the protein to different products.

The U.S. alleges that the dairy protein powders were mixed with other products so they would not be categorized as skim milk powder or milk protein concentrate, and therefore subject to export controls.

The U.S. submissions also flagged lactose and lactose syrup, suspecting that specific manufacturing techniques were being used to produce a highly concentrated dairy protein that could be exported.

But Canada remains a comparatively small exporter of dairy proteins globally.

In 2019, the global export of skim milk powder was dominated by the U.S., New Zealand and Germany, which together accounted for 43.8 per cent of global trade. Canada’s share of global exports in 2019 was 1.32 per cent. The top three nations grew their share to 45.4 per cent by 2023, while Canada dropped to 0.93 per cent.

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