BALTIMORE -- Maryland's oyster industry, coming off its worst year since the Civil War, faces an even bleaker 1987-88 season.

Disease and poor reproduction among Chesapeake Bay oysters probably will drive prices up and result in some packers going out of business, officials say.

"This season was bad. Next season will be worse," said William Outten, shellfish program leader of Maryland's Department of Natural Resources.

The state's prominence in the oyster industry continues to fade, with Gulf and Pacific watermen picking up the slack. Since 1980, the Chesapeake's share of the nation's oyster harvest has slipped from 42 percent to 28 percent, according to the U.S. Commerce Department.

"I've watched the West Coast companies take a bit more of the country each year. This is oyster country and we have West Coast oysters being sold in grocery stores here," said Oscar Nelson, general manager for Kennerly-Booth Inc. of Nanticoke, one of the state's largest oyster shippers.

Maryland's oyster industry has been trying to cope with a crisis triggered by two shellfish diseases, MSX and dermo. Watermen have been able to compensate for the drop in volume by charging higher prices, but packers have not been so lucky. They need a high volume of oysters to run profitably.

Faced with a dwindling oyster supply, packers have been reluctant to modernize plants and equipment, further hampering their ability to compete with packers from other regions.

Though Metompkin Oyster Co. of Crisfield bought Gulf Coast oysters to keep its plant busy, the company still lost money last year. Other companies, like Toddville Seafood, have shifted their emphasis to blue crabs. Others have gone out of business.

Last year's poor harvest -- estimated at 900,000 bushels in Maryland -- drove retail prices up about 10 percent, to $6 or $7 a pint.

At the same time, Pacific production is expected to rise 20 percent as the region's hatcheries yield their first big results.

The Department of Natural Resources has stepped up programs to restore Maryland's oyster harvest to pre-1983 levels, which were more than 2 million bushels annually.