Irish dairy co-operatives have been told they should consider setting up a giant supercreamery to process the 1.2 billion gallons of milk produced by farmers in the Republic.
The industry was also told it could reduce its costs by 15 per cent or around 3p per gallon if it restructured the assembly, processing and marketing of its products into larger businesses.
The prediction was made by the Irish Co-operative Organisation Society, which is the umbrella body for the co-operative movement, which has suggested a number of options for the future.
In its in-depth strategy review of the sector, ICOS said the industry was facing significant policy and market challenges which would damage co-operative profitability and dairy farming income unless new strategies were put in place.
The ICOS director general, Mr John Tyrell, said the CAP reform price reductions, combined with the effects of inflation, would create a price-cost squeeze which could halve on-farm milk margins.
In addition, he said, inflation would reduce the purchasing power of farmers' real incomes in the next decade. This could not be remedied through devaluation, because the Irish pound was now fixed against the euro.
He warned that Ireland's competitors had developed low-cost strategies through increasing business scale and also had product differentiation for value and margin-adding products. Mr Tyrell said there had been significant consolidation in the dairy industry in Holland, Scandinavia, Germany, New Zealand and the USA.
The ICOS document, he said, offered three structural options for the implementation of the strategies, which included incremental development of the present structure.
An alternative was for co-operatives to combine at regional level to process the main dairy products, either through mergers or joint-venture investments.
The third option put forward was the setting up of a single large-scale processing business for the State's main dairy products.
Mr Tyrell said ICOS would hold consultations with senior management and boards of co-operatives to initiate the implementation process and would establish a steering committee.