PRODUCE Investments, the potato and daffodil supplier, has reported a sharp fall in first half profits after the supermarket price wars and a supply glut weighed on trading.

The Borders-based company made £1.9m pre tax profit from continuing operations in the 26 weeks to 27 December compared with £5.4m in the equivalent period of 2013.

Sales fell to £80.8m from £89.6m.

The company, which owns the Greenvale AP potato business, appears to have been caught in the crossfire of the battle for market share between the UK's big four supermarket chains and discounters.

Chief executive Angus Armstrong said: "The much-documented retailer price wars triggered significant pricing pressure throughout the entire supply chain, resulting in value and volume decline over the past 12 months."

The problem was compounded by the fact there was an exceptional growing period for potatoes in 2014 resulting in plentiful supplies. However consumption of fresh potatoes fell resulting in supply significantly exceeding demand.

Potato prices had spiked in 2012-13, when poor crop yields caused by wet weather led to price inflation.

Mr Armstrong said the Aim-listed company has taken steps to limit the impact of market fluctuations. These included closing the Tern Hill packaging site in Shropshire in August.

He said: "Produce's management is working closely with its core retail customers to create a new supply chain model that is more aligned to prevailing market conditions in any given season."

Produce said its board remains confident the company will meet market expectations for the full year. The board has approved an increase in the interim dividend to 2.39p per share from 2.275p last time.

The company said the integration of the Jersey Royal Company, which it bought in a £14.9m deal in May, is progressing well and is on schedule.