FARMWAY made a profit of £240,000 last year, despite huge difficulties with the foot-and-mouth crisis.

The farmer-owned co-operative was described as leaner and more sustainable at its annual meeting on Wednesday.

After suffering a £450,000 loss in 2000, managers said last year's profit came from maintaining core-business turnover and expanding retail operations. Costs and borrowing were cut.

A restructuring plan was implemented and full time staff had been reduced from 144 to 89. The machinery business was wound up and the head office is moving from Darlington to Piercebridge in May.

Chairman John Hutchinson was optimistic about the future challenges and said: "Farmway has shown a much improved all-round performance. Difficult decisions are beginning to bear fruit.

"Last year was one of the worst in living memory. Despite that, Farmway has a profit approaching £250,000; interest payments of 3.5pc on members' share capital, and a transfer of reserves of £150,000. This is an exceptional performance and a credit to our management and staff.

"The £22m turnover for 2001 was almost identical to the previous year, before foot-and-mouth. Operating costs were reduced by £1m and interest payments cut from £130,0000 to £95,000.

"With £90,000 paid to members from profits, the £150,000 transferred to reserves has boosted the balance sheet. The total shareholders' fund stands at £4.15m."

Retail trade at Countryware shops was strong, with sales of feed, horse supplies and clothing increasing profits. Shop staff included individuals with special equine knowledge.

Retail manager Judith Wox was praised and Farmway's membership of purchasing group United Farmers was a key factor in competitiveness.

Commercial manager Tony Simpson added: "The seed business has also done very well. We had a good spring and autumn, making 2001 one of the best years for a long time."

Farmway's joint grain marketing venture with GrainCo at Tyne Dock brought in more than £75,000 profit - m tonnes of grain were shipped. Although the cereal sector was a "nervy industry" and export prices were low, he thought this year's harvest could be very good and hoped to increase turnover.

Regarding the foot-and-mouth crisis, he said Farmway incurred huge costs through movement restrictions and disinfection. Multiple deliveries were impossible, bio-security procedures were extremely time-consuming, and there was no compensation.

Mr Hutchinson added: "The effects of foot-and-mouth will linger for several years and change the lives of our members and customers permanently. Agriculture is entering a period of even greater uncertainty."

Livestock farmers were feeling very cautious and restocking was slow.

On other matters, finance manager Peter Hull said the potato business had a successful year, as did Farmway's petrol station at Morpeth. The machinery business was reluctantly wound up.

Looking ahead, chief executive David Loane announced £600,000 was set aside for this year's capital investment programme, with £160,000 earmarked for a Piercebridge grain silo.

"Our new head office is smaller, but more appropriate to us. This year will be yet another challenging one, but we are in a more sustainable position and anxious to see the business move on, following a period of necessary consolidation.

"We now operate with a Government which views the role of farmers and the land quite differently to that which we have been accustomed."

Managers expected to see a ban on fox hunting, but were uncertain how this would affect business, because lost hunting trade might be counterbalanced by new equine sports and other forms of diversification.

They reflected on their years at the King Street site, where Farmway's predecessor, Teesside Farmers began operating in 1917.

Burt's Carpets moved into part of the building last July. Property manager Nigel Todd said the offices would probably be refurbished but no further developments had yet been considered.

The value of the site was not revealed.