The food industry has sounded an alarm over the government's plans to slash £90m off its food budget by using a central procurement scheme.

The Treasury invited the food industry's trade bodies for a meeting in which it consulted with them about its plans to make wholesale savings to its £2.1bn a year food bill. It said there were 40,000 different buying points for food across the country but there could be massive savings to be made by buying centrally, and reducing the number of small catering contracts.

The industry fears that if the government is to meet its targets, the quality of food served to soldiers, hospital patients and schoolchildren could suffer.

"Margins in selling to the public sector are not nearly as high as they are when dealing with the private sector, so it is hard to see how the government is going to make these savings," said Jim Winship, director of the British Sandwich Association. "A lot of companies won't deal with the public sector because margins are so tight and there is a real danger that if they are going to meet these targets they would have to compromise on quality."

Andrew Ramsden, CEO of DBC Foodservice, which supplies the MoD, agreed there was no room to make cuts in the public sector supply chain. "They need to be careful when cutting," he warned. "Soldiers, for example, need a very high calorific intake and we need to make sure the meals we give them are well balanced and nutritious."

There were also fears that if the government centralised its buying it could cut smaller, regional players out to the benefit of foodservice giants such as Brakes and 3663 First For Foodservice.

"If they have larger contracts, local producers aren't going to be able to satisfy that because by definition they produce smaller quantities and they operate on higher margins," said Clare Cheney, director general of the PTF.

The Treasury said it wanted to help public sector organisations work together to make efficiencies.