The federal government is preparing a financial compensation package for Canadian dairy and poultry farmers as a way to blunt the impact of signing onto a massive Pacific Rim trade deal which could allow a surge of agricultural imports from other countries, sources said.

Details are still being worked out – and the Trans-Pacific Partnership agreement has yet to be concluded – but the model used when Canada recently clinched a trade deal with the European Union was to offer cash to cushion the blow for everything from higher drug costs borne by provinces to the impact on dairy producers and Newfoundland's fishing industry. In these cases, Ottawa insisted the losses be proven.

Canada's heavily protected dairy and poultry sectors are in the crosshairs of the United States and other farm-export powers as momentum builds toward a Trans-Pacific Partnership (TPP) agreement. Negotiations are expected to resume shortly with talk of a deal as early as August after the U.S. Senate voted this week to give President Barack Obama unfettered power to negotiate new trade deals.

Story continues below advertisement

The price of entry for Canada – one of 12 countries in the TPP talks – is expected to include allowing more duty-free dairy and poultry imports from countries such as the U.S., Australia and New Zealand.

The return to the bargaining table is ill-timed for the Conservative government, which is seeking re-election this October.

Conservative sources say the Tories are unwilling to enter an election campaign with a "bad news story" involving angry farmers – and they are preparing to offer compensation should a deal be reached that grants foreign agricultural producers greater access to sheltered dairy and poultry markets in Canada.

During a visit to Quebec on Thursday, home to nearly half of Canadian dairy farms, Prime Minister Stephen Harper said Canada has no choice but to join this budding Pacific Rim free-trade zone.

"These negotiations are going to establish what will become the basis of the international trading network in the Asia-Pacific. It is essential, in my view, that Canada be part of that, that the Canadian economy be part of that," Mr. Harper said.

International Trade Minister Ed Fast insisted Thursday that supply management will still be left standing when the talks are concluded.

"The Government's commitment to our supply managed sector has not prevented us from concluding ambitious free-trade agreements, such as the Canada-European Union trade agreement and the Canada-South Korea free-trade agreement," Mr. Fast said in a statement.

Story continues below advertisement

In a 2014 trade deal, Ottawa granted the European Union the right to import more than 16,000 additional tonnes of cheese without paying steep tariffs.

The United States and other countries are seeking concessions from Canada for dairy and poultry products under the TPP that at least equal, and possibly exceed, the scale of what Ottawa gave the EU, dairy industry sources said.

Even a small influx of additional imports could upset the balance in Canada.

Tariffs of as much as 300 per cent shield Canadian dairy and poultry farmers from foreign imports and a rise in imports could easily destabilize Canada's carefully calibrated supply-management system, which tightly regulates the price and production of milk, chicken and eggs – industries worth $10-billion a year.

Washington signalled its impatience Thursday with Canada's pace of negotiation in the Trans-Pacific talks.

The top U.S. trade negotiator called out Canada for not yet tabling what trade concessions it will make in the negotiations, the publication Inside U.S. Trade reported. It cited Michael Froman as saying the United States has "work to do" with Canada. He spoke of "market access negotiations with Canada on issues like dairy and poultry where we're still waiting for them to come to the table with a meaningful offer so we can achieve the necessary level of ambition in that area as well."

Story continues below advertisement

A spokesman for the Dairy Farmers of Canada said the country's cheese sector is already set to take a hit in the free-trade deal with the European Union. He said the TPP could lead to a further erosion of the protections enjoyed by the country's farmers.

Yves Leduc, the group's director of international trade, said the coming round of talks "is worrying for dairy farmers across the country," adding he is still hoping for "carve-outs" in the final deal to protect sensitive sectors of Canada's economy.

The NDP accused Mr. Harper of delivering a confusing message on the TPP negotiations, saying a number of important issues are being discussed in secret.

"It appears that he is leaving the door open to weakening our agricultural sectors and is prepared to sacrifice them to some degree in the TPP without saying so," said NDP MP Don Davies. "We'll keep a close eye on these talks and urge the government to hold firm on protecting Canada's sensitive agricultural industries."

The Liberal Party agreed that Canada must be part of the TPP but said the federal government should still preserve supply management.

"It would be really devastating for Canada to be left on the outside, and it's the job of the government to negotiate a deal that benefits all sectors of the economy, absolutely including the supply-managed industries," Liberal MP Chrystia Freeland said.