The weakness in world dairy markets and the strength of the pound against European currencies were the main factors behind a sharp fall in profits at Tipperary Co-op last year from £1.48 million to £614,000. Sales were down from £74.5 million to £67.4 million. With the pound still firmly on top of the exchange rate mechanism and extremely strong against the French franc, the German mark and the Belgian franc, the co-op is facing further exchange rate difficulties this year although dairy markets - particularly and skim milk powder - have stabilised.

The co-op's chairman, Mr Michael O'Brien, made a strong plea for the needs of the agriculture industry to be recognised when an EMU entry rate for the pound is being negotiated.

The general manager, Mr Noel Horgan, said the value of the pound against the French franc is the key for the co-op, and added that an entry rate of 8.2 to 8.3 francs would be the ideal rate for Tipperary. The pound is currently trading at just over 9 francs, with the French currency the weakest in the ERM.

Unlike other dairy processors currently benefiting from the weakness of the pound against sterling, Tipperary sells very little into the UK to compensate for the difficulties that ERM exchange rates pose for its continental business.

Despite the profits fall last year, Tipperary Co-op is in a strong financial position, with virtually no debt, despite a £2.8 million capital investment in both the Irish and French operations last year.

Mr Horgan said that the co-op is looking at diversification and is currently examining expansion into a "non-grass" indoor crop. He declined to expand but there are suggestions that the co-op may be planning a move into the mushroom business. Tipperary bought an L&N store in Tipperary town last year, but is unlikely to move any further into retailing, he said.

The chairman had some strong words of warning on super-levy penalties for the co-op's milk producers, following the £350,000 imposed on suppliers in the last quota year. He warned milk suppliers to be vigilant in their management of milk quotas.

On rationalisation in the dairy industry, Mr Horgan said: "There is room for small players like us if we do our job well and do it efficiently."