Turnover at the Irish Dairy Board fell by 6.6 per cent to €1.95 billion in 2001 as the foot-and-mouth crisis saw Ireland locked out of the world markets for a time.

But Bord Bainne managing director, Dr Noel Cawley, said yesterday that the group's operating surplus still rose by 4.7 per cent to €37.1 million.

He attributed falling sales to lower dairy product prices, a restructuring of subsidiary operations in mainland Europe, reduced availability and consequently, lower purchases of EU intervention product.

Dr Cawley said the group's balance sheet remained strong with members' funds increasing by 8.1 per cent to €262.3 million. Total debt amounted to €198 million.

Board chairman Mr Tom Cleary, who is stepping down after 20 years in the post, said demand for Irish dairy products in the early part of the year had remained high because of concerns about shortages following the slaughter of dairy cows in Britain during the foot-and-mouth crisis.

However, by the summer, these shortages had failed to emerge and demand began to weaken as a result of declining confidence in the world economy, reduced oil prices and a general weakening of the US economy.

He said a faltering US economic situation was compounded by the aftermath of the events of September 11th.

Mr Cleary predicted the outlook for the future in terms of price being paid to farmers for milk as "not great".

Dr Cawley, who reported a drop in the sales of Kerrygold butter for the first time in many years, said that, following the recent announcement by the US government of huge increased payments to farmers, EU agriculture ministers would come under a great deal of pressure to increase supports in Europe.

He said European dairy prices were being supported by intervention and he would like to see the European Commission remove the upper limits from intervention and allow the system operate after August each year when it normally ceases.

In overall terms, 2001 had been a satisfactory year for the board's branded business and, despite the negative impact of the foot-and-mouth crisis on both meat and dairy products, Kerrygold sales had declined by just 2.8 per cent, year on year. Butter sales were down in Germany and Britain, but in Germany Kerrygold maintained its dominant market position and benefited from a strong and sustained advertising and promotion campaign. There had been a major growth in the sale of Kerrygold spreadable butter in Britain and Dubliner cheese sales also grew despite aggressive price discounting.

Sales of Kerrygold were also growing in other markets like Greece and Spain where cheddar cheese sales exceeded targets and new retail listings were achieved for grated and pre-packed variants.

Dr Cawley said it was very unfortunate that, because of US controls, only limited amounts of Kerrgold butter could be sold in the US where there was a growing demand for Irish cheese which was not so rigidly controlled as butter sales.