Kerry Group CEO says milk price fall unsustainable

DUBLIN, Aug 6 (Reuters) - Dairy prices are sinking towards uneconomical levels that could lead to a drop in production if the trend continues, the head of Ireland (Other OTC: IRLD - news) 's largest food company Kerry Group (Other OTC: KRYAF - news) said on Thursday.

The industry benchmark for international milk prices, Fonterra's GDT Price Index, dropped 9.3 percent to a 13-year low in an auction held on Tuesday.

"We are heading towards levels where it is uneconomical to produce long term and that is going to have to correct itself. It's not sustainable," said Stan McCarthy, chief executive of Kerry Group, which processes 1 billion litres of milk per year.

Speaking to journalists in Dublin, he said the key driver would be demand in China, which has fallen off sharply, and it was not yet clear when demand would pick up there.

Accounting for just over one percent of world milk output, Ireland is not a major milk producer but it is one of the largest exporters in Europe with 80 percent of milk output sold abroad.

Ireland's government promised that billions of euros and thousands of jobs would flow from the historic deregulation of Europe's dairy sector earlier this year, with farmers facing no legal restrictions on the amount of milk they can produce for the first time since 1984. (Reporting by Conor Humphries; Editing by Mark Potter)