The strength of the pound against the deutschmark and other European currencies has reduced the incomes of dairy farmers by about 9 per cent, according to the Irish Dairy Board.
However, farmers income would be protected if the pound enters monetary union at its existing central rate in the ERM, said the managing director of the board, Dr Noel Cawley.
Speaking at the end-of-year review of Irish and world markets, Dr Cawley said that despite the pound/DM rate, the continuing strength of sterling, particularly in the second half of the year, had assisted many sectors, most notably the cheese industry.
Due to a revaluation of the green pound rate in March 1997, milk prices were down this year, even though two subsequent devaluations in May did reverse some of the decline.
The organisation welcomed the merger of Avonmore and Waterford Co-ops and said it would mean a more commercial and economical dairy industry.
The chairman of the organisation, Mr Tom Cleary, said that next year would be the most important for farmers since the early 1970s. The enlargement of the EU posed particular challenges as quotas might have to be tightened even further and prices might also drop.
The board said butter production fell by 2.8 per cent to 138,000 tonnes this year, but returns were up significantly as the year progressed, resulting from strong third country demand and certain members diverting milk to cheese and whole milk powder.
Casein returns were weaker, particularly in the United States, and production declined by 4.8 per cent to 40,000 tonnes.
Overall, Dr Cawley said, the prospects for next year were "moderately encouraging".
However, he emphasised that world trends indicated there were serious problems ahead for the EU dairy sector. Figures show EU milk production is growing by 0.6 per cent, compared to 7.5 per cent in South America, 3 per cent in South Asia and 7 per cent in Oceania, mainly accounted for by Australia and New Zealand.
Irish milk output fell by 1 per cent, but further cutbacks will be needed in the first quarter of next year if the dairy industry is to remain within its EU quota.
This may prove more difficult than usual next year, as the increased production in milkfat may put the Republic above its permitted quota level.
The board gave a preview of its results, to be announced next year, when it said pre-tax profits would "at least" reach the £22.1 million recorded last year. According to Dr Cawley, the board expects to be able to announce an annual bonus fund of about £6 million next year - this is money which goes to members of co-ops and plcs in proportion to their sales to the board.
