Sector trends

Is diversification the future of farming?

Many farmers are looking to diversify to improve income, provide stability and – if necessary – cover any shortfall that may result from the loss of future subsidies.

  • From letting out buildings, opening a shop or cultivating crops for bird seed, farmers are doing all they can to stabilise their income
  • Farmers need to consider their personal strengths and the situation of their land when choosing how to diversify their business
  • Tax implications and healthy and safety legislation should be taken into account when creating a new stream of income

“Diversification is now seen as the smart thing for farmers to do,” explains Gary Brockway, agricultural accountant. “It’s a way of stabilising income and maximising profits.”

However, changing your business model comes with a degree of risk and the potential loss of upfront investment, although this can be minimised with proper planning and consultation.

What help is available?

The government is keen to encourage farmers in business ventures in the hope of improving the rural economy. A Growth Programme has recently been set up, offering grants to farmers and other entrepreneurs interested in endeavours that can boost the rural economy, including business development, food processing and rural tourism programmes.

But with diversification options plentiful, how do farmers decide on the right route for their business?

What’s on trend?

The FBS survey revealed that the most popular – and profitable – form of diversification was to let buildings for non-agricultural use, with the installation of solar panels coming in second. But these options do not suit every farmer and come with a degree of risk.

What’s the best option? In the first instance, farmers need to consider both their personal strengths and the situation of their land when choosing how to diversify. “Consider what you are able to do,” explains Brockway. “And take into account the likely demand. Often, it’s no good starting holiday lets in a place with little tourism, or having a farm shop that’s inaccessible.”

Alternatively, it may be worth simply letting out a building or field to someone else. “Why jump through hoops to do something you’re not naturally good at when someone else will pay you money to come in and run their business from your premises?” says David Missen, head of agriculture at MHA, an association of accountants.

The typical timescale

Farmers keen to generate a new income stream must consider timescale when choosing their diversification route. “For example, you could let out some buildings in a pretty much unimproved state [for storage], and this could be done more or less overnight.

“But if you’re looking at a farm shop, you need to seek planning permission, ensure there is proper access and raise funds for the conversion, which may take months or years,” explains Missen.

Tax relief and business rates

Agricultural premises currently benefit from relief on Inheritance Tax. But, warns Missen: “If you let a building out to other people for non-agricultural purposes, you’ll lose this relief.”

Agricultural buildings are also not subject to business rates, although those used for other purposes may well be. “It’s important to research this thoroughly,” recommends Missen. “If you suddenly get a £15,000 rate bill, it may wipe out any profits for that year completely.”

Small business rate relief may be available if your rateable value is less than £15,000, while buildings with a value of less than £12,000 aren’t subject to business rates at all.

Most farming sales are also VAT-exempt, but this doesn’t necessarily mean your new business venture will be. “If you do a holiday let, for example, it generates a taxable supply,” explains Brockway. “Farmers often assume this won’t apply and can be caught out.”

Health and safety

While farmers are no strangers to health and safety legislation in their agricultural practices, different legislation may be applicable to their diversified business.

“Consumer health and safety is a whole different thing,” says Missen. “For example, one client had to clad food-storage rooms with stainless steel when he opened a farm shop. You need to factor such modifications into your plans.”

How does all this work in practice?

It was a bad spring that prompted Norfolk-based arable farmer Algy Garrod to consider diversification. “We ran out of crops in the spring of 2003, so I put in some sunflower seeds,” he explains. The success of this crop led to the development of an own-brand bird seed, and the opening of a farm shop in 2005 to sell this and other farm produce. Continuing to experiment, Garrod then had the idea of growing and producing popcorn, and in 2012, Algy's Norfolk Popcorn was born.

The popcorn is now sold at local music venues and other retailers, and has sparked interest from the East of England Cooperative Society. Now Garrod aims to secure funding to expand the business further. “We’re quietly excited,” he says, “but it’s been a very long road.”

Having previously grown flowers for drying alongside more traditional arable crops, Jim Bubb saw a gap in the market and launched Shropshire Petals, selling natural petal confetti. “We wanted to have a more stable source of income,” he explains, “so we grew delphiniums, which are ideal for confetti.”

Since its launch in 2005, the company has seen an impressive rise in turnover and is aiming for 10,000 orders in the current year.

Cutting costs cooperatively

As well as looking at ways to generate further income, most farmers are looking at how they can reduce their costs.

“Efficiency in the farming industry has increased enormously over the past 20 years – it’s had to, as the cost of the product hasn’t gone up very much. Farmers are getting to the stage where they cannot get any more efficient.” says Missen. “However, I’d recommend they consider cooperative selling – joining a grain pool, for example – which can often yield a better deal.”

Machinery sharing is another step recommended by Missen. “I think this is the way forward. Many farmers own combine harvesters, which are often worth more than a house but are only used for a couple of weeks per year.”

“Machine sharing can be done by liaising with neighbours, cutting costs for both sides,” he explains.

What does the future hold?

Whether farmers choose to try beekeeping, cheese production, running an art gallery or simply letting out a building for storage, farming is ripe for diversification in the future.

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