Food group Donegal Creameries expects to complete a merger between its Carbury Mushrooms operation and competing producer Monaghan Mushrooms shortly. The merger, which comes as both companies struggle with difficult trading conditions, will create a major European player within the mushrooms market.

Donegal managing director Mr John Keon said fierce competition from Dutch and Polish mushroom producers had made consolidation inevitable.

Full details on the deal are expected to emerge soon but Mr Keon has confirmed Donegal will retain a minority equity stake in the new entity. Donegal owns slightly more than 51 per cent of Carbury, with turnover within this stake declining from €11.2 million to €9.9 million over the first half of this year.

Monaghan Mushrooms was established by entrepreneur Mr Ronnie Wilson more than 20 years ago. Shareholders include Enterprise Ireland.

Mr Keon also revealed that Donegal, which yesterday reported healthy interim results, hopes to break into waste management with the establishment of an organic composting business at its lands in Letterkenny. Any new operation would be established as a joint venture, and would be positioned to service the waste needs of Co Donegal's substantial fish industry.

The company has also submitted planning application for a retail and office development on its property. Construction has already begun on a section 50 student accommodation development on another part of the land.

Donegal recorded a pre-tax profit of €4.05 million over the six months to June 30th, up 16.6 per cent on 2002 as higher dairy prices and income from property disposals boosted the overall outcome. Its turnover of €68.8 million was 1.8 per cent higher than last year.

Operating profits were 4.8 per cent ahead at €2.8 million. Donegal will pay an interim dividend of 5.25 cents, up 5 per cent on last year..