Top tips for farm diversification

Farm diversification has for decades been used by farmers looking to supplement their income streams. In recent years the phrase ‘farm diversification’ has become very in vogue but is now broader than ever. It incorporates a wide range of both active and passive income streams for farmers and other landowners. Income generating opportunities continue to present themselves, whether that be a derelict barn converted into a furnished holiday let, rental income from a solar company or opening a farm shop. In a recent NFU survey 34% of farms say they have already diversified.

But what is best for your farm? Tom Stuckey, Partner at Westcotts, explores the benefits of farm diversification and the options available.

Be aware of your strengths and weaknesses

One of my clients who is a self-confessed grumpy old farmer recently said to me “I can hardly think of anything worse than having holidaymakers staying on the farm, moaning about the smell or the noise of the scraper tractor in the morning”. At least my client realises that converting the stone barn next to his farmhouse into a holiday let is not the right option for him.

But the serious lesson to learn is that the right answer for one farm could be completely inappropriate for another. Look at your business, its natural resources and the innate skills which the business owners possess. Then use this as a starting point for any farm diversification plans.

But what are the pros and cons of diversifying your farm?

Don’t put all your eggs in one basket

The main advantages of diversifying your farm include:

• Spreading risk. By having a varied source of income, it can help support the farm through difficult market downturns.
• It can create additional revenue streams when primary operations cannot be increased or optimised any further.
• It may allow other partners within the partnership to use their skills to take ownership of a new project.

Jack of all trades, master of none

The risks of farm diversification include the following common pitfalls:

• Spreading resources too thin – particularly your precious time. A diversification project will almost certainly fail if you are not able to dedicate the necessary time to operate it effectively. This can be disastrous if the project requires large upfront financial investment. Equally, taking your eye off the ball and losing focus may result in loss of efficiency and productivity for your primary income source.
• Lacking the sector-specific knowhow for the new venture to succeed. The age-old adage ‘stick to what you know’ may not always be best but it does emphasise the importance of fully researching an idea, gaining knowledge and developing the necessary skills to turn that dream into a profitable reality.

Examples of farm diversification

There are a wide variety of ways farms can diversify their operations, these include:

• Holiday and leisure: Furnished holiday lets, B’n’B, glamping, camping and even working farm holidays are all very popular.
• Alternative use for less productive land: Shooting, fishing, Environmental Land Management schemes and carbon credits.
• Backwards (upstream) integration: Grow more of your feed crops yourself to manage the cost of livestock feed.
• Forward (downstream) integration: Become a food processor and retailer of your own farm products to reap the benefit of the higher margins achievable selling to the end consumer. For example, milk vending machines and farm shops.
• Varying livestock or crops: This could be a mixed farming set-up or simply diversifying into finishing cattle rather than selling as young stores.

All of the above options do require continuous management and investment of your time. Some prefer the idea of passive income streams given their age or lack of free time. These would include rental income from solar panels, wind turbines or barn storage.

Need a helping hand?

Whatever farm diversification plans you may be considering on your farm, Westcotts are here to help. Please contact your usual Westcotts partner who will be able to review the opportunities available to you and help you to construct a robust business plan.

Alternatively, you can email Tom Stuckey at tom.stuckey@westcotts.uk or call 01297 33388.