Lakeland Dairies has reported a 17 per cent increase in pre-tax profits to £2.7 million (€3.4 million) for 1998 with increased sales in its dairy and agri-trading divisions.

Overall turnover was up 10 per cent to £136 million (€172.7 million), while operating profits rose from £1.89 million to £2.99 million.

The company said profit increases were achieved while the co-operative "maintained its policy of paying the highest possible milk prices to its producers". Lakeland pays £1.04 per gallon to farmers, while many of its competitors pay £1.

But Mr Daniel Buckley, Lakeland chief executive, warned there was "a limit to how long a co-operative can sustain such payments". "Without reasonable levels of profit, a co-operative will be unable to maintain investment in capital equipment and research and development." He added that low-cost producers from the southern hemisphere could undercut European prices and this would increase pressure on prices here.

Turnover from dairying increased from £92.3 million to £102.3 million for the year with new areas of growth in Northern Ireland and Britain.

Agri-trading sales rose to £33.8 million from £31.4 million. Mr Buckley said results from this sector would have been better "were it not for Lakeland's decision to reduce the prices of both feed-stuffs and nitrogen fertilisers to assist farmers during last summer's fodder crisis".

He said the co-operative could spend £20£30 million on acquisitions and it had already looked at some "options" in Britain.

Mr Buckley called for the regional consolidation of co-operatives, but admitted that most co-operatives "seem uninterested in that route at present".