The manufacturers of Lurpak butter have been forced to lay-off more than 100 staff in reaction to a boycott of Danish products in the Muslim world over the controversial publication of cartoons of the Prophet Mohammed.

Arla Foods, Europe’s second-largest dairy company, said today that it would lay off 125 staff in its factories in Bislev, near Aalborg in the north of Denmark, adding that a further 40 people would see their working hours reduced.

Arla Foods, a co-operative owned by some 11,600 milk producers in Denmark and Sweden, is Denmark’s biggest exporter to Arab countries, accounting for one-third of total Danish exports there.

Arla, for which 8 per cent of its total production is at stake, has been the group hardest hit by boycotts of Danish products across the Muslim world, where anger over the publication, originally in a Danish newspaper, of 12 cartoons depicting Prophet Mohammed continues to swell.

Gulf countries, especially Saudi Arabia, have followed boycott calls, and the populous northern African countries have also heeded the call to shun Danish goods.

Outside Europe, the Middle East is Arla Foods main export destination, with Saudi Arabia as the largest single market.

Butter, feta, processed cheese and full-cream milk powder are the core products in Middle Eastern markets, the company said.

"Our business out there has been completely undermined," Finn Hansen, the head of the international division of dairy company Arla Foods, said.

"Our products have been taken off the shelves in 50,000 stores. Without a quick solution, we will generate no more turnover in the Middle East," he said.

Arla said that no job cuts were planned in the Middle East, including in Saudi Arabia, where the company employs 800 staff in a Riyadh factory, where production has been halted.

Plans to extend the factory there have, however, been postponed.

Denmark exported goods worth €1.2 billion (£815 million) to Arab countries in 2004, according to the foreign ministry. Although this represents just 1 to 1.5 percent of total Danish exports, the lost income is taking a big chunk out of the businesses concerned.

"In turnover, this is costing us 10 million kroner [£800,000] a day," an Arla spokeswoman told AFP.

While dairy companies are worst hit, pharmaceutical companies are also big losers, accounting for 14 per cent of total goods hurt by the boycott. Egypt alone buys 33 per cent of Denmark’s drugs exports to the region.

In Dubai branches of French hypermarket giant Carrefour, the shelves were empty of Danish butter and cheese products.

"Carrefour no longer sells this garbage," said an Emirati employee of the chain owned by local conglomerate Al-Futaim Group.

In Kuwait City, signs were put up at many malls and shopping centres reading: "We have boycotted Danish products".

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