An Irish company's plan to use tax-free industrial development bonds to establish a huge new dairy farming operation in Georgia, at a time when the government is trying to reduce milk surpluses sharply, has stirred protest reaching from the nation's dairy heartland to Capitol Hill.

Masstock International, a Dublin-based company that runs large dairy farms in four other nations, is seeking to invest at least $35 million in Georgia to build dairy operations that could be expanded to 20,000 cows in the next few years.

The first of the farms, a 1,000-cow operation that would cost $6 million, is scheduled to open this year in Macon County, where the local development authority has sold $4.5 million worth of tax-exempt development bonds to help the Irish company get started.

At the same time, Georgia dairy farmers have agreed to cut the state's milk production 22 percent by taking about 24,000 cows out of production this year and then to leave the dairy business for at least five years as part of the new government program to reduce costs of the federal surplus milk, butter and cheese purchase program.

Although some Macon County farmers support the Masstock project, promoted as a major new income and employment opportunity, it has drawn a bitter reaction from others. Members of Congress have pounced on it as a perversion of federal farm and tax policy.

The most bitter reaction comes from Wisconsin, the nation's leading dairy state, whose farmers stand to lose a potential market for their excess milk if the Georgia operation becomes a reality.

Wisconsin lawmakers, led by Sen. Robert W. Kasten Jr. and Rep. Steven Gunderson, both Republicans, responded by introducing legislation that reaches well beyond the dairy issue and promises to generate heavy debate in Congress. Their bill would bar federal farm-program benefits to nonresident aliens and end the tax exemption on bonds issued to finance U.S. farm operations by aliens.

"What is happening in Georgia makes absolutely no sense," Kasten said. "We are paying family farmers to leave the dairy industry through the buyout program at the same time we're paying foreign corporations to get into dairying through tax subsidies and price supports. It's an affront to dairy farmers and to taxpayers alike and must be stopped."

Gunderson added, "We can't prevent foreign people from operating in agriculture here, but I think it is absolutely wrong that we would use tax-exempt bonds as a means of financing those operations."

Despite the criticism and reaction, Helen Garr, executive director of the Macon County Development Authority, said yesterday that local officials have no intention of renouncing the Masstock project, which also has the strong support of Gov. Joe Frank Harris (D).

"The dairy overproduction crisis in the United States has been in the making for 20 years," Garr said. "It is Georgia's good fortune at having a firm that wants to invest $35 million to $40 million here. Masstock did not create the dairy crisis, and it is somewhat unfair they are being singled out as a contributor to the problem."

Garr said that, while Masstock's presence in the area will mean jobs for farm workers and eventually for employes in a processing plant it will build, hard-pressed local farmers also will benefit. The company plans to buy grain and forage crops from them to feed its animals, all of which will be purchased in the United States.

For Masstock, the farm operation shapes up as a no-lose deal in an area where population growth is expected to increase milk demand sharply over the next 20 years.

In addition, the price of Masstock's milk would be protected by the federal support program; a regional differential approved by Congress would keep its prices higher than in other areas of the country. Investors would pay no tax on income from the development bonds, and the company would receive a lower interest rate on its financing because of the bonds.

But Rep. Tony Coelho (D-Calif.), chairman of the House Agriculture subcommittee on dairy, livestock and poultry, warned at a hearing Thursday that he and others who crafted the new program to reduce dairy output intend to make life difficult for Masstock.

"We're not about to sit here and let people from Georgia put more milk on the domestic market. We're going to do everything possible to stop foreign interests from coming in here and upsetting the apple cart," he said.

Coelho and other subcommittee members expressed greater anger when officials of the Agriculture Department, which has campaigned heavily since 1981 to reduce dairy production, refused to speak against the Masstock project.

As part of its campaign, the USDA does not allow its Farmers Home Administration (FmHA) to make loans to finance new dairy operations.

"This administration believes that the federal government should not interfere with an individual's right to open or expand a private business concern," said Richard Goldberg, deputy undersecretary of agriculture. "We are in favor of free markets; we're not in favor of destroying people."

Gene Marks, a Mansfield, Ga., dairy farmer, put it another way:

"The issue is the same, whether it's a foreign or an American investor. If you are financing them with 2 to 3 percent cheaper interest and the other benefits, then you are putting the dairy farmer out of business . . . . We don't believe new dairymen should be encouraged by the use of industrial development bonds."