One in four UK fresh produce companies are making a loss as they struggle to pass cost inflation along to consumers, new research has suggested.

According to research from Plimsoll, the ability of produce groups to hike prices is restricted by competitive pressures and almost half – 46% – of UK produce firms have seen their gross margins fall over the past year.

While companies are fearful of losing customers to competitors if they increase their prices, report author David Pattison warned that falling profit margins across the industry is the “first warning sign that this strategy has become unsustainable”.

“Over the past two years the average profit margin in the UK fresh produce industry has fallen to 2%. More worryingly, 225 companies are losing money with 115 of these doing so for the second year running. These companies face a tough decision – protect their market share and continue to lose money or adjust their prices to reflect their increased costs. Without refocusing on the bottom line, many of these companies will simply run out of cash,” he warned.