Potato and daffodil supplier Produce Investments has warned a metal contamination problem could cost it up to £1.5 million and announced plans to close a packing site in Kent.

The AIM-listed company, based in Duns in the Scottish Borders, had previously flagged the metal issue at its Swancote Foods subsidiary in Shropshire which resulted in the recall of potato salad and ready meal products.

It said the contamination occurred due to a failure inside one of its blanching machines although it was not picked up by detection systems further down the supply chain.

A new blancher is being installed while quality control processes have also been changed.

Produce, which supplies the likes of Tesco, Sainsbury, Asda, Waitrose and Marks & Spencer, said the potential financial impact is still being analysed but it is believed to be in the range of £300,000 to £1.5m.

The company also outlined that it has been working with one of its core retail customers on a new supply chain model to mitigate changing market conditions.

As a result of those discussions it will see volumes with that customer drop from around 40 per cent to 25 per cent of its total from July next year.

But it has struck a three-year agreement at a fixed margin while also retaining 100 per cent of organic potato supply with that customer and increased its Jersey Royal share to 100 per cent.

Chief executive Angus Armstrong said: “While this has come with a reduction in overall volumes starting from July 2016 which is clearly disappointing, we are extremely pleased to have achieved this arrangement, a first for our business, a signal of market confidence in Produce Investments and a positive step forward.”

The agreement has led Produce to reviewing its packing facilities with its site in Kent facing closure, although a consultation is running until November 23.

Produce, which owns the Greenvale potato brand, said it is proposing to transfer “all packing and associated operations” to sites in Cambridgeshire and Scotland.

Mr Armstrong said: “Consequently, as a result of this reduction in volume, the company is currently reviewing its requirements across its packing facilities, aligning capacity to forecast sales and therefore ensuring that the business remains efficient and cost competitive.

“This may well lead to the closure of the company's Kent based packing facility, subject to the outcome of the current consultation process.”

That came as Produce revealed a dip in pre-tax profit from £8.6m to £7.3m for the 12 months to June 27.

Turnover dropped from £191.8m to £178.4m as a result of a high yielding potato crop but subdued demand from major retailers negatively affecting prices.

Produce said the integration of The Jersey Royal Company, which it bought in May last year, is progressing well.

Mr Armstrong said: “We remain very confident about the future prospects of the business and the strategic rationale of the deal remains sound as it strengthens the group's product offering and also gives the group greater control and influence over the early season potato market.”

Along with that its storage and ripening business, Restrain Company, was said to have increased profits after leasing more of its systems in the UK and abroad.

The daffodil supply arm, Rowe Farming in Cornwall, was said to have had a successful year.