The rise of farm diversification and what to consider

The world of farming is changing rapidly with more farmers looking to diversity to survive, often providing services which are far removed from the core business.

Two thirds of all UK farms already use some form of diversified activity to add to their income, according to The Department for Environment, Food and Rural Affairs (Defra)1.

Defra statistics show that diversification activity brought in £740m of income in 2018/19 – up 6% on the previous year2. This is a figure that is expected to rise in 2020 as farmers consider the economic landscape in a post-Brexit era.

The range of add-on services offered by rural businesses includes traditional options, such as using the premises as a B&B or wedding venue or investing in renewable energy generation.

But other innovations include activities as varied as taking alpacas into care homes, opening up the farm for ‘wild running’ events or setting up an on-site micro-brewery.

What to consider when diversifying

All these services provide vital extra income at a time when making a profit from farming is increasingly challenging.

Taking the first steps, however, can be daunting.

Many farms are family-based small and medium-sized enterprises. Therefore, owners or tenants may have little or no experience outside of their core business activities.

Careful planning and an extensive risk assessment are vital to ensure that diversified services are safe, secure and profitable.

Defra warns that farm diversification is not guaranteed to boost business and can be a complex process – but also reports that diversified activity can bring in an average of £19,800 a year.

For many farmers, the balance between traditional and diversified income is already shifting rapidly. For 39% of farms which include diversified services in their accounts in 2018-19, that new income accounted for at least a quarter of overall income. For 22%, the figure was more than 50%.

Types of diversification and things to consider

Not all diversification requires innovative ideas or a niche market.

Defra says that letting out buildings remains by far the most common enterprise, followed by solar energy projects and sport and recreation activities. Catering and tourist accommodation (including glamping) also featured highly, along with retail and other sources of renewable energy.

However, adding any new service – no matter how tried and trusted – requires careful thought and extensive research, including asking whether planning permission will be required.

Farmers who close their original agricultural business and start an alternative one on the same land will almost certainly require planning permission for the change of use.

By contrast, farms which continue to use agricultural land or buildings for agricultural purposes – the definition of agriculture is fairly broad – may be able to use permitted development rights subject to checking, in advance, whether they would require the planning authority’s prior approval for any associated development.

Why insurance is vital

Insurance is also an important consideration when planning diversification because your current policy may not be sufficient to cover the new business activity.

A robust risk assessment is absolutely vital to identify potential risks to staff, customers and the business itself.

Some questions to ask include:

  • If you need to take on new staff, are they covered by employers’ liability insurance?
  • Are all business activities insured for public or products liability?
  • Are all revenue streams insured in the event of a material loss?
  • Have risk assessments been carried out on any new activities involving members of the public?
  • Have you purchased any air pressure or lifting equipment for new projects – if so, do you have engineering inspection insurance?
  • If you plan to add play equipment or hot tubs for paying guests, have you told your insurer?
  • Have you considered business interruption insurance to cover losses in the event of bad weather, equipment failure or illness?

CLA Insurance can help you through the process of understanding what insurance type and how much cover you need for your new business venture. Approaching CLA Insurance early in the process can help determine what types of business are feasible and how much protection is available.

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