The food sector needs consolidation similar to that which has occurred in places such as Denmark, New Zealand and the Netherlands, the managing director of Glanbia has said.

Mr Ned Sullivan said the Republic could learn from the Netherlands and New Zealand, where two companies processed more than 80 per cent of milk, and Denmark, where one company handled 90 per cent of milk output.

"We need to achieve the depth of consolidation and operational efficiencies which now characterise our main competitors on the world markets," he told the conference delegates.

"Of the seven largest dairy companies in the world by volume [of which Glanbia is the seventh], five are the products of mergers completed in the last 24 months," he said.

"Further large-scale merger discussions are also under way among a number of the leading German dairy companies which will also rewrite the leader board," he added.

After his address, Mr Sullivan said it was unlikely that Glanbia would lead the consolidation drive. "We have already achieved significant economies of scale through the merger of Avonmore and Waterford," he said. Glanbia's dairy processing operation had been consolidated into large-scale sites such as Ballyragget, Co Kilkenny.

This was an important initiative to reduce operating costs, he said. But these kind of cost savings were not enough.

"Being caught between the rock of cost inflation and the hard place of price deflation means this grinding of the cost base must be continuous," he said.

Glanbia was unlikely to make any large acquisitions in the next year, although capital investment and small bolt-on acquisitions would continue, he added.

On milk price, Mr Sullivan said the company was paying £1 per gallon, but it was impossible to say at this stage whether the price would fall. "We are committed to our milk price guarantee scheme which offers suppliers the weighted average plus 3p." Mr O'Sullivan said a recent report that Glanbia was planning to sell-off all its meat plants in the Republic and Britain was incorrect. But he declined to comment on another report which suggested that Dawn Meats might buy some beef and rendering plants in the Republic.

Industry sources believe, however, that Glanbia is close to negotiating to sell its red meat operations and that Dawn is the most likely buyer.