Glanbia, the State's largest dairy group, has postponed implementation of a rise in the wholesale price of milk to retailers for one month.

The group's managing director, Mr Ned Sullivan, initiated telephone contact with the Taoiseach, Mr Ahern, yesterday to explain the move after it became aware that the Government was concerned about the possible inflationary effect of its price rise.

Glanbia said it was determined to implement the increase which reflects its rising costs, but said it needed more time to communicate with retailers.

The size of the proposed rise is thought to have surprised other dairy groups and some large retailers.

It involves an average increase of 7 per cent, or 4p per litre, in the wholesale rate of milk. But because the rise depends on sale volumes, some retailers will pay more than 7 per cent and the group has indicated that a small number may pay increases as large as 20 per cent. Retailers are likely to pass the rise on to consumers.

The new pricing structure will reflect both sales volumes to retailers and increasing costs at Glanbia, which claims half the national market for liquid milk.

But RGDATA, the group representing family-owned groceries, claimed the increase was unjustified. Its incoming director general, Ms Ailish Forde, said there was considerable anger and incredulity among small retailers that Glanbia was attempting to "arbitrarily" impose the increase.

Stating that Glanbia was the sole or dominant supplier in some areas, she said the group had a responsibility not to abuse its dominance.

However, Mr Sullivan claimed Glanbia's dairy unit lost money last year and would only break even this year if the new price rise was implemented. Compound inflation rose 35 per cent in the past eight years, he said, but the retail price of milk rose by just 7 per cent.

Rival dairy groups were reluctant yesterday to reveal their plans. But a spokesman for Kerry Group, whose Dawn brand claims a 15 per cent share of the overall market, said producers wee making "little or no margin" in the liquid milk sector. The group would review the situation at a board meeting in early July, he said.