Produce Investments today (29 January) warned its annual pre-tax profits would be below market expectations after a spike in the potato supply hit prices.

The UK-listed group said it believes its pre-tax profits for the year to 27 June would fall “substantially below” what the market expects.

It pointed to an “exceptional 2014 growing season”, which put pressure on prices. The company also cited a fall in consumption of fresh potatoes.

“Both the value and volume of fresh potato sales have been negatively impacted during the last 12 months. In order to compete with the discounters the big four retailers have had to invest significantly in lower retail price points for key staples, potatoes included, and this has led to price pressure down the whole supply chain,” Produce Investments said. “With an abundance of cheaper crop, all market channels have come under price pressure and demand for secondary crop and factory out-grade material has been low. In response to this, early indications are that area plantings in 2015 will be cut back.”

The company said volumes had improved in recent weeks but insisted there was still “deflationary pressure” in the value of fresh potato sales.

It said it would work with retailers on to set up “a supply chain model that is more aligned to the prevailing market conditions in any given season” to try to reduce the impact of crop changes on its financial performance.

The group added: “The group remains cash generative and is committed to its long term strategy of widening both its product base and customer base, creating a more diverse business model for the future. It also remains committed to the long-term development of the GreenVale brand and sales of this product remain in-line with the company’s expectations.”

Shares in Produce Investments were down 16.91% at 140p at 16:41 GMT today.