Many meat slaughterers will go bust if the Welsh government does not step in to subsidise struggling smaller abattoirs, an influential new report has claimed.

The Welsh government should "develop a mechanism for subsidising the industry that will secure the future of Welsh abattoirs", said the National Assembly for Wales' Rural Development sub-committee in its report.

The Meat Hygiene Service has proposed bringing an end to its current subsidy system to help pay for regulatory services, with a move instead to full cost recovery from the industry.

But the Association of Meat Inspectors claimed that plan would leave only one or two abattoirs in Wales, while NFU Cymru argued Welsh meat would lose its local point of difference if animals had to be sent over the border for slaughter.

The government currently pays £2m in subsidies to abattoirs in Wales to help them pay for meat hygiene services, but it has proposed scrapping this as it no longer wants to subsidise the industry. Pressure from the new government to cut costs only makes it more likely the proposals will go ahead, sources say.

Producers argue either consumers or farmers would suffer if processors had to pass on costs.

Among seven other recommendations in the report into issues facing the meat industry was a call to reconsider the practice of contract-hiring vets and replace them with vets directly employed by the FSA, a suggestion welcomed by the Unison Cymru union.

"Our members felt the risk of contamination was increasing as the industry had too much control over the inspection process and there were too few inspection staff to effectively regulate the practice," said regional organiser Darron Dupre.

The report also called on the Welsh government to set up a review group to assess the effectiveness of current meat legislation in Wales.