The beef industry is facing a "catastrophic" future unless rationalisation takes place soon, a new report says.

The report, undertaken by the consultants McKinsey & Company and commissioned by Enterprise Ireland, says there will be substantial job losses and a large number of plant closures, unless immediate action is taken.

The report is currently being considered by a task force set up by the Minister for Agriculture, Mr Walsh.

One of the report's recommendations is that the number of beef processors in the Republic be reduced from 20 to between four and six.

One way to do this, says the report, is to set up a £25 million industry fund to compensate those companies which leave the industry. The larger beef processors have so far been unwilling to contribute to this fund and the issue will be considered in the new year by the task force.

The report says the sector has performed poorly in recent years and that "going forward both producers and processors face potentially catastrophic outcomes". It says that while producers will be compensated for much of the future fall in cattle prices, the net loss to Ireland from the Santer reforms could be up to £165 million.

"There is a huge amount of year-round over-capacity in the industry - twice as much as needed - the effects of which have not been felt to a significant degree yet," it says.

"By itself, the existing level of over-capacity will lead to very significant losses and ultimately players and plants leaving the industry over time," it adds. However, in the near term it says the problem will get worse and it is likely capacity will be nearly three times as much as is needed.

In the long run the sector, in the absence of subsidies, is not competitive in the international marketplace, according to the authors.

"Therefore, if at some point in the future the subsidy support system is dismantled or substantially reformed the low level of underlying productivity will be exposed," the report states.

The rationalisation proposals would see the industry fund a buyout scheme in which those players which stay in the sector compensate those which leave. The report is pessimistic about the sector taken the necessary steps. "Sufficient financial pain is not yet being felt by the processors to motivate them to pro-actively pursue rationalisation," it says. "Some processors have an implicit belief that some outside event (government action, changes to the support regime) will resolve their problems," it adds.

It says this view may prove to be right, but the report says that time is running out for such a solution.