The Irish Dairy Board expects its turnover for 1998 to increase to £1.4 billion from £1.3 billion the previous year and profits to be maintained at about £24 million.

The company says a dramatic reduction in sales to Russia were offset by strong performances elsewhere in 1998.

Sales for the board's main brand, Kerrygold, continued to grow and are expected to top £350 million by year end.

Managing director Mr Noel Cawley said sales for the brand in continental Europe were "particularly strong" with an increase of about 6 per cent expected over 1997. The board will publish its full results for 1998 next year.

Chairman Mr Thomas Cleary said that although the output of Irish milk declined by 2.7 per cent during the year, the overall price rose by 4p per gallon.

During the year output of butter fell by 5 per cent, cheese increased by 8.1 per cent, while butteroil was down by 17 per cent. One of the reasons for the drop in output, apart from the Russian collapse, was the fall in demand for milk powder in Asia.

However, the board said that a series of small devaluations of the Irish pound's green rate helped the Irish milk price "rise unexpectedly".

The weakening of the pound against continental currencies, especially the deutschmark and the Dutch guilder, improved the Republic's competitive position against its EU trading partners, it added.

In 1997 the board exported 10,000 tonnes of butter to Russia, but in the last six months this was reduced to a trickle, said Mr Cawley. He said this was one of the most disappointing outcomes of the year's trading.

The butter market was firm this year, he said, and was an important contributor to the improved milk price.

Lower milk production and stronger returns from alternatives meant cheese production was down 3 per cent in the first six months of the year, he said.

"It was a reasonable year for the industry, bearing in mind the turmoil in international markets and the consequent difficulties experienced in all sectors of Irish agriculture and food production," said Mr Cawley.

The board said world dairy demand was expected to increase by 1 to 2 per cent annually over the next decade. "With the exception of skimmed milk powder and condensed milk, the growth prospects are encouraging for all product categories, but in particular for cheese," said the board's review.

The future of the sector is closely tied up with protection of the EU internal market, said the review and this will be a priority in the negotiations on a new round of trade liberalisation due to start in 1999.

"The EU absorbs 90 per cent of total EU milk output and offers much higher returns than the world market," it added.

He said the board did not make any acquisitions during the year and was instead concentrating on consolidation and rationalisation of its structures.

The board has agreed to pay a £3 million bonus to its members which will be paid on a pro rata basis depending on the members' level of sales.

In terms of the political outlook for the dairy sector, Mr Cleary, said moves by some EU states to end milk quotas must be resisted.