Britain's fruit and veg companies are wasting £387m in potential profits every year, making them attractive targets for private equity, according to a new study by business analysts Plimsoll.

The study claimed 740 of the 1,000 most-important companies in the sector would make more profit under new ownership, and said gross profit margin in the sector was 15% - half the UK average.

One in five companies are also making a loss. The study's publication comes just weeks after major supplier Bomfords went into administration under the weight of its debts.

"These results prove just why the fresh produce industry is currently hot with takeover talk and speculation about future ownership," said David Pattison, senior analyst on the project. "Some of these fresh produce businesses have huge potential that is not being realised."

Pattison predicted that as many as 5,000 jobs could be shed in coming years in an effort to improve the sector's profitability. "Pretax profit levels in the UK fresh produce market are floating at the 2% mark, indicating the industry is far from being as profitable as it could be. Many will seek to blame the supermarkets for driving down prices."

Some companies were paying too much interest on debt while others maintained excessive stock levels, he said, adding that suppliers should ditch unprofitable sales contracts to improve earnings.

Nigel Jenney at the Fresh Produce Consortium welcomed the report, but insisted the industry was not in crisis. "We need to keep things in context. The industry had retail sales last year of more than £7bn."

He also cast doubt on the idea that interest payments should be considered a waste of money. "Some people may be paying too much in interest, but borrowing money is still a key way of investing."

Topics