The UK potato harvest will slump to its lowest for more than
30 years thanks to the poor weather already estimated to have cut wheat yields to a
20-year low, one of the country's top potato merchants has said.
Produce Investments- the owner of the Greenvale potato
business, which counts retail giant Tesco among its customers - said this year's
UK potato crop would fall to 4.5m-5.0m tonnes thanks to continuing poor weather,
which is following up a historically wet summer with yet more rain.
Besides representing a slump of 25% in production year on year,
a harvest at this level would be the lowest since 1976.
It would also represent a second blow to UK farmers whose average
wheat yield is estimated to have averaged less than 7.0 tonnes per hectare, on
a crop which on one key measure, specific weight, is the worst on records going
back to 1977.
Many farmers are expected to abandon the last of their standing cereals thanks to the downpours now preventing potato growers from
getting on to fields in what should be near the peak harvest period.
"The wettest spring and summer in over 100 years is
impacting crop production quite significantly," Angus Armstrong, the Produce
Investments chief executive, said.
"This is likely to result in a lower-than-average UK
yielding crop, which will lead to higher-than-average prices."
In fact, the average price of non-contract potatoes reached
£261.72 a tonne last week, a rise of 3.7% week on week - and nearly triple the
price of a year ago, according to the British Potato Council.
"Prices and demand were very firm as severe weather
conditions restricted lifting," said the council, which has yet to make a public estimate itself of this year's UK harvest.
Produce Investments said it was shielded to some extent from
the market rises by the fixed-price contracts agreed with farmers ahead of the
growing season for "a large element" of its supplies.
Ironically, that model left the group paying over-the-odds for
many potatoes in the year to the end of June, after an average harvest in the
UK last year, and strong one in many European countries, depressed free-market values.
Nonetheless, Barrie Clapham, the Produce Investments
chairman, said that this year's poor harvest was "likely to impact the group's
performance in the year ahead" and revealed that the company was to halve its
final dividend, to 1.82p a share.
Including the interim dividend already paid, the full payout
for the year will come to 3.64p, a drop of one-third.
The group revealed that its profits for the year to the end
of June more than doubled to £4.98m, despite a drop of 10.2% to £153.9m in
revenues, reflecting last year's depressed potato prices.
The increase in profits reflected both a lower effective tax
rate and what broker Shore Capital termed "a commendable operating margin
increase as the company continued to drive efficiency".
And Produce Investments also unveiled its first takeover
since listing two years ago, paying some £15m in cash and shares for Rowe
Farming a Cornish-based grower and supplier of new and salad potatoes favoured
by the county's relatively warm climate and light soils.
The acquisition will, besides adding a "very profitable"
business with operating profits of £3.1m in the year to March, boost Produce
Investments' access to UK potato supplies, so lowering its reliance on imports,
and take it into the daffodil market, in which Rowe Farming has a foothold.
Produce Investment will "continue to seek similarly
attractive acquisitions", said Mr Clapham, flagging the diversification the
daffodil operations will give in diversifying the group from potatoes.
The results were termed "strong" by Shore Capital analyst
Phil Carroll, who added that Produce Investments had bought Rowe Farming at an "attractive
valuation" of 4.4 times earnings before interest, tax, depreciation and amortisation
The entry into the market for daffodils, harvested early in
the calendar year, "arguably also helps derisk the group in the early part of the
potato season from supply chain gaps".
UK daffodils also represent a "growth market", expanding by
11.8% in the year to mid-May, according to AC Nielsen.
However, Mr Carroll withdrew his forecasts for Produce
Investments results, awaiting further information on the UK harvest.
Produce Investment stock closed 0.7% lower at 151p in London.