Canada will pay out up to C$333m ($243.1m) over the next ten years to dairy producers and processors impacted by concessions it has made in trade deals.

The Dairy Innovation and Investment Fund, which is in effect a new tranche of compensation packages dating back to 2020, is intended to “help the Canadian dairy sector increase its competitiveness and adapt to new market realities”, the government’s Agriculture and Agri-Food Canada department said.

Specifically, the non-repayable compensation is to bolster the dairy industry against losses it had made as a result of trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and Canada-United States-Mexico Agreement (CUSMA).

Last month, New Zealand won a trade dispute with Canada centred around Kiwi dairy products being denied access to the North American country.

Both countries are members of the CPTPP, a trade pact between a group of nations that also includes Australia and Mexico and which the UK has committed to join.

New Zealand effectively accused Canada of protectionism.

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Now Canada is seeking to protect its dairy industry via financial compensation.

Announcing the compensation package, Lawrence MacAulay, Minister of Agriculture and Agri-Food, said the fund will help the Canadian dairy sector to stay competitive.

Canada is also facing a growing surplus of solids non-fat (SNF), the remaining component once cow’s milk is processed and the fat is removed for use in products such as butter and cream. Limited processing capacity for SNF results in lost opportunities for dairy processors and farmers, the government said.

Through the fund, Canadian dairy processors will have access to support for medium to large-scale projects that will help the sector better manage the surplus of SNF in Canada. The fund will support activities that help modernise, replace and/or increase processing capacity for SNF and minimise skim milk that is not marketed.

The government said it will “continue to preserve, protect and defend Canada’s supply management system and is committed to not making any additional market access concessions for supply-managed products in future trade agreements”.

MacAulay said: “The dairy sector is an integral part of Canada’s economy and rural landscape, supporting strong and vibrant communities across the country. This new fund will drive innovation and increase processing capacity, enabling the sector to stay competitive by maximising the full value of solids non-fat.”

The compensation package was welcomed by dairy industry bodies.

In a statement, the Dairy Processors Association of Canada, said: “This fund not only helps dairy processors overcome the uncertainty caused by recent trade agreements, namely CETA [the Canada-European Union Comprehensive Economic and Trade Agreement], CPTPP and CUSMA, but also offers a tangible solution to the challenges linked to the surplus of milk.

“Growing demand for butterfat products such as cream and butter, has created a significant surplus of skim milk, which has outpaced the industry’s processing capacity. The support provided by the programme therefore comes at a critical time and will ensure that investments take place in the near future.”

David Wiens, president of Dairy Farmers of Canada, added: “Dairy Farmers of Canada welcomes today’s announcement of the Dairy Innovation and Investment Fund. This fund will help the Canadian dairy industry improve its processing capacity. As proponents of innovation, we look forward to continue working with processors and other key stakeholders in developing solutions that contribute to a vibrant and robust dairy sector.”

The Canadian Dairy Commission will deliver the Dairy Innovation and Investment Fund on behalf of Agriculture and Agri-Food Canada.

Canada’s dairy sector generated C$17.4bn in sales in 2022 and employs more than 70,000 people, according to the country’s government.