Holy cow! How Canadian dairy prices made NAFTA negotiations turn sour

American farmers have been frothing against Canada’s strict management of its dairy supply for years – so it was not entirely surprising that when hopes of reworking a NAFTA deal evaporated this week, they did so over milk products.

Under the dairy supply management system, Canada sets quotas for production and regulates prices. Protecting that system has always taken outsize importance in Canadian trade negotiations, but a few new circumstances brought tensions to a boil this time around.

First, most of Canada’s dairy farms are in Quebec, a politically crucial province that traditionally makes and breaks the country’s federal elections. They also happen to be concentrated in a few swing electoral districts, or ridings, said Avery Shenfeld, a senior economist at Canadian bank CIBC.

“Even though this does affect a relatively small number of people... there’s a vocal group of people in the industry that keep the pressure up on politicians to side with maintaining the existing system,” he said.

On top of the normal political concerns, Quebec just began a provincial election campaign. The incumbent leader, Philippe Couillard, is a Liberal, like Trudeau, and he’s been struggling in the polls.

Two months ago, Couillard advocated for flexibility, telling Bloomberg that when it comes to a particular American grievance around “ultra-filtered” milk, used in cheese production, “let us see how we can approach that separate from” the bigger system.

This week, he’s stuck firmly to the message that protecting dairy farmers is nonnegotiable.