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.

'Significant impact'

"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.

Dividend cut

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.

First acquisition

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.

'Growth market'

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 (ebitda).

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.