IRISH dairy processors have cautiously welcomed the British government's proposal to slaughter cattle over 30 months old in response to the latest BSE scare.

"The impact on the dairy sector appears to be neutral," commented Mr Michael Patten, head of corporate affairs at Waterford Foods, which has 8 per cent of the British liquid milk market and owns the second largest cheese producer.

However, Mr Patten cautioned that the proposal's had yet to be approved by the European Commission and the company was awaiting the outcome of the current negotiations between Britain and its EU partners.

Other Irish companies with major operations in the British dairy industry include Avonmore, Dairygold and Goldenvale.

Under the plan put forward yesterday in Luxembourg by the British agriculture minister, Mr Douglas Hogg, the cattle being culled will be coming to the end of their productive life as dairy cattle. These cattle, around 15,000 a week, would normally have been slaughtered for human consumption, but will now be destroyed.

Mr Hogg also proposed that the EU institute a buy in policy to take the animals out of circulation, to be 80 per cent financed by the EU and 20 per cent by Britain. There was no immediate response from Mr Hogg's 14 EU counterparts.

The key factor for Irish dairy companies with operations in Britain is that the proposal will have no major impact on the amount of milk being produced in the UK and should not lead to any increase in milk prices, according to industry analysts.

Britain is less than 90 per cent self sufficient in milk, and any fall off in British production would have led to more imports, inevitably pushing up prices.

In these circumstances, dairy processors such as Waterford could have been faced with paying higher prices for their milk, which would have had to been passed on to customers. Waterford's British subsidiary, the Cheese Company, is the second largest British cheese maker, with eight factories. It also has liquid milk businesses in Manchester and Durham.

Dairygold is also involved in the British cheese market, with a plant in Somerset, while Avon more has liquid milk businesses in Birmingham and Salisbury. Goldenvale has a small liquid milk business in south Wales.

The impact on the beef processing industry of the measures proposed by Mr Hogg yesterday are harder to assess, according to analysts. Heavy discounting of beef prices by British supermarket chains has already led to a recovery in British beef consumption, which may be expected to increase as consumer confidence returns.

However, the sector will remain depressed as long as the ban of British beef exports remains. Demand for British beef is unlikely to return to its pre BSE scare levels in the short term, posing major problems for the British processing industry, which already suffers from overcapacity, one analyst pointed out.

A shakeout in the processing sector now appears inevitable. Abattoirs serving the beef trade are not allowed to kill cattle for, incineration due to public health concerns.

Ireland's two three largest meat processors, Irish Food Processors, Dawn Meats and Kepak, all have substantial British operations, mostly serving the British supermarket trade. However, it is the smaller regional abattoirs that are most vulnerable rather than the larger concerns.