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UK potato area to match level which helped prices double

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UK potato sowings this year will match last year's low levels, the weakest for at least a decade, raising hopes for growers of a continuation of the "balanced" market which has seen prices double over the past year.

Produce Investments - owner of the Greenvale potato packing operation, and supplier to the likes of major UK supermarket chains – said that UK sowings of the vegetable this year would "come in at a similar level" to the roughly 110,000 hectares planted in 2015.

Sowings at this level, by far the lowest on easily accessible data going back to 2005, raise hopes for a continuation of the improved market conditions for farmers, who suffered a plunge in prices as a bumper 5.75m tonne harvest two years ago boosted supplies.

The "required" drop in sowings last year, when output dropped to 5.4m tonnes, has led to "more balanced" supply and demand in the UK potato market, Produce Investments chief executive Angus Armstrong said.

'Reports of tight supplies'

Indeed, data from the AHDB bureau on UK potato stocks last week showed inventories down 350,000 tonnes year on year at a three-year low of 1.9m tonnes, as of the end of January.

The tighter market has been reflected in prices, which for free-buy potatoes – those not produced under contracts – stood at £171.81 a tonne as of last week, up £9.01 a tonne week on week and more than double the £83.68 a tonne at the same time last year.

"Since the start of the year and the free-buy price has risen £21.80 a tonne in the same period with continued reports of tight supplies and increased demand from packers," the AHDB said.

Indeed, potatoes have represented one of the best bets for UK farmers, who this month saw, for example, London wheat futures fall below £100 a tonne for the first time since 2009.

'Improved performance'

For Produce Investments, the "more balanced" UK potato market, and "relatively stable" conditions in the key retail market, "has resulted in an improved performance" in results terms, Mr Armstrong said.

The group reported a 37% increase to £3.43m in operating profits for the July-to-December half, on revenues down 3.0% at £78.5m, with margins also helped by capacity cuts, with the closure in 2014 of a plant in the West Midland, and in December of a facility in Kent the south east of England.

"In the half year to December, man hours per tonne [of potatoes] packed are better than last year by 13%," Mr Armstrong said.

However, a charge related to the closure of the Kent site dragged the group to an after-tax loss of £158,000 for the half year, compared with earnings of £1.54m a year before.

'More robust position'

Produce Investments said it expected potato markets to "remain challenging.

"However, the market is relatively stable and the recent acquisitions and site rationalisation puts Produce in a more robust position to cope with these pressures," it added.

Shore Capital analyst Phil Carroll said that Produce Investments had made "solid progress", adding that the group was "well placed to make progress operationally and financially with a stronger business model in place and the capability to drive growth both organically and acquisitively".

Produce Investments shares stood down 0.3% at 155p in afternoon deals in London, but remain up 29% from a low hit three weeks ago.


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