Strong growth in its consumer foods business was the main driving force in a strong set of results from Golden Vale, with pre-tax profits up 22 per cent to €30.2 million (£23.78 million). The results were slightly ahead of market forecasts and shareholders are being rewarded with an 8 per cent increase in dividend to 3.81 cents per share.

Virtually all the group's €35.2 million operating profits came from consumer foods. The butter/milk powder operations ran up a €900,000 loss on sales of €277 million. Golden Vale's chief executive Mr Jim Murphy was blunt about this division's performance, saying: "The performance of this business is unacceptable and of serious concern to the board. The board is reviewing all options to correct this situation."

Mr Murphy declined to speculate on what action Golden Vale might take but, given that one-third of its shareholders are farmers who sell milk for the group's butter/milk powder operations, closing down the business does not seem to be an option.

"We have got a problem, but it's an industry problem," said Mr Murphy, adding that two modern butter plants could handle the requirements of the entire production in Ireland, North and South. "We are working at industry level to do all we can to tackle the cost base. We tackled our problems in the Netherlands and solved them. We will do the same here."

But with dairy commodity prices remaining weak in the face of pressure from the EU to lower subsidies, Golden Vale's current milk price of 100p/gallon may come under pressure when peak milk production begins in March/ April. "The political direction in Europe is to bring agricultural prices down and that's bound to make it difficult for farmers," he said.

The reaction of Golden Vale suppliers to any threat to the current milk price remains to be seen but it has been a contentious issue for some time.

Golden Vale's consumer food operations, which takes in products ranging from Cheese-strings to St Brendan liqueur and the Rye Valley prepared foods business, were a much better story last year with operating profits up 32 per cent to €34 million and margins up from 6.2 per cent to 7.7 per cent. Turnover was up just 6 per cent, reflecting the closure of the Vonk cheese operation in the Netherlands and the acquisition of the Dairy-born business in Britain.

Turnover at the Rye Valley prepared meals business, which sells own-brand meals to major multiples, totalled €65 million - a rise of 23 per cent on the 1998 level. Rye Valley is in the middle of a €28 million expansion to its Carrickmacross, Co Monaghan plant and is building a €13 million plant in Enniskillen, Co Fermanagh. Both are due to begin production in the current year.