Almost half of UK farmers (48 per cent) are planning to set up or expand diversification schemes following the UK’s biggest shake-up in funding for decades, according to new research by NFU Mutual.
With significant changes to Government subsidy support, the sharp increase has seen farmers move into new areas such as tourism, hospitality and retail to support farm income and create opportunities for family members.
NFU Mutual’s farming specialist Chris Walsh said: “The next seven years will be crucial for the farming industry - because of this many farmers are looking at new business opportunities in order to spread their risk.
“Farmers have always had to adapt to changing times, and a number have been diversifying for decades. But even more are now deciding to support their agricultural work with new ideas."
Claire Saunders, director of The Prince’s Countryside Fund, said diversification, off-farm income and other income streams were ‘critical to survival’.
She highlighted the PCF’s Resilience Programme was helping farmers understand how new enterprises can alleviate their dependency on direct farm payments, which will be phased out from 2021.
Pete Ledbury, who opened the North Cotswolds Dairy Company with his wife Emma in 2019, having converted their old tank room into a creamery, said: “We decided to diversify into selling our milk direct… It is relatively early days, but we can already see the financial value as the diversification tops up our milk cheque each month.”
NFU Mutual urged farmers to consider the financial implications of diversification and stressed the importance of detailed planning to minimise risks to the public and employees.
Mr Walsh said: “There is only room for a certain number of farm shops, holiday cottages and wedding venues so farmers planning to diversify need to do careful research and costings before they start converting cow sheds into cafes.”
Mark Charter, partner at Carter Jonas, added evaluating the financial viability of diversification was ‘fundamental’, and urged farmers to carefully assess the financial implications of setting up non-farming activities to avoid higher Inheritance Tax Bills.
He said: “Detailed market research, assessment of cash flow and creating a business plan and projections are all pivotal to a successful and profitable diversification project.
“Moreover, striking the right balance between trading and investment activities is imperative, because while the business plan may project strong numbers, they are slightly redundant if farmers do not continue to qualify for the available tax reliefs.”
Defra statistics showed farm diversification brought in £740m of income in 2018/2019.
NFU Mutual suggested there may be opportunities for farmers to access Government financial support for diversification schemes in the future.