Tim Smith, Arla UK's chief executive, said cutting one billion litres out of Britain's milk production could help those remaining in the sector work more profitably. He said there was too much milk on the UK market.
His comments, originally reported by Scotland's Herald newspaper, were later confirmed by an Arla spokesperson.
They came at the opening of Arla's £18m, state-of-the-art dairy facility in Lockerbie, which will have the capacity to process 150m litres of fresh milk per year.
Debate has grown in the British dairy industry over how to tackle low prices and earnings in the sector.
Britain's farmgate milk prices average around 18p and remain the lowest among the 15 pre-accession European Union countries. Britain's top dairy processors, meanwhile, have had a turbulent year of profit warnings amid rising input costs and price pressure from supermarkets.
"There's a constant debate in the industry about over which level [of milk production] we are most profitable at," said Jim Begg, director general of industry association Dairy UK, to FoodProductionDaily sister site DairyReporter.com.
"The industry has an obligation to increase the demand for added value products and we are constantly trying to do that."
A recent report by the Milk Development Council warned that Britain was lagging dangerously behind other European countries in added value dairy sectors. Some believe cutting UK milk production would help channel more milk into added value markets.
Begg said, however, that farmers themselves must make a decision on production. "We are in a market driven economy and they must follow the market signals."
A recent report commissioned by agriculture ministry DEFRA warned that by 2007/08 the country could be "facing a worst case scenario" of milk production more than one billion tonnes below its 14bn-litre quota, as set by the European Union. Current production is around 13.3bn litres per year.
It said the major reason for this was that greater numbers of larger, more efficient dairy producers had left the industry than was originally forecast.
Dairy UK's Begg told DairyReporter.com previously, however, that many in the dairy industry questioned the use of EU milk quotas as a benchmark for industry production.