The ranks of Scotland's food producers are set to be thinned dramatically as the fall-out from the global credit crunch results in a surge of consolidation and puts many out of business.

According to an analysis by accountancy firm Grant Thornton, the food industry is in for a torrid time over the next two years as a combination of raw material cost increases, a squeeze by retailers and tight credit markets puts sector players under huge pressure.

Food producers are especially vulnerable to the combination of rising raw material and energy costs and demand weakness.

Given the dominant power of the supermarket chains, suppliers may find they have to accept a fresh squeeze on margins as retailers try to protect earnings.

As the food production industry is an important driver of the Scottish economy and a vital source of employment in many rural and coastal areas, the implications of the research are grim for Scotland.

With the pressures hitting smaller firms hardest, David Cockburn, a corporate finance partner in Grant Thornton's Glasgow office, predicts that the country will see a wave of mergers and acquisitions.

A number of well-funded, privately-owned firms in Scotland could act as consolidators. However, rivals from south of the border and overseas are likely to come looking for deals in Scotland.

The ongoing fall-out from the credit crunch is also set to boost the number of failures as firms find they cannot raise debt and fail to find buyers.

"Food producers must be acutely aware of what is happening and why in their own sub-sector. Questions about who is acquiring, who is selling and who is going out of business are crucial. Businesses should assess what the implications are regarding either growth or decline in their sub-sector and then decide whether they should be a consolidator, be consolidated or be able to thrive on their own," said Cockburn.

The research suggests consolidation pressures will be strongest in the meat, fish and poultry sector.

The recent acquisition of Grampian Country Foods by Vion was driven by the Dutch buyer's desire to increase its scale to give it more power with buyers and suppliers.

The fruit and vegetable sector is fragmented. Firms are subject to increasing demands from retailers who want suppliers to provide a range of products all year round.

Specialist drinks firms could come in for bid interest as bigger producers try to extend their ranges. Scotland's AG Barr recently paid £60m for Rubicon, a fruit drink producer based in Wales. Tomorrow, the rural affairs and en-vironment committee of the Scottish Parliament is holding a round-table discussion on food policy, which will be attended by specialists in food production.