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Why British farmers should revisit diversification options in wake of Brexit

With the industry on the brink of major change in the UK, farmers are being urged to look at creating new income streams to de-risk the farming business.

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Why British farmers should revisit diversification options in wake of Brexit

Farmers should be looking seriously at diversification options as the industry braces for change after Brexit.

 

With farming incomes under pressure, spreading the risk over several enterprises to best utilise a farm’s assets could help futureproof the business.

 

Supporting the business through non-farming income was also a logical next step for many, though farmers were warned not to diversify ’for the sake of it’.

 

Claire Barritt, a senior associate at Ipswich law firm Prettys, urged farmers to ‘revisit their business plans’ to ensure they were not caught out by potential cuts in subsidies when Britain leaves the EU.

 

With payments set to drastically change post-Brexit, to a system of public money for public goods, Ms Barritt said farms can prepare for the financial impact with diversification.

 

“We still do not know for sure what the long-term subsidy strategy of the Government is going to be post-Brexit,” she said.

 

“If, as expected, subsidies are reduced, then farmers will certainly have to look at diversification and efficiencies in how they run their businesses.”

 

She suggested opportunities included growing different crops, converting redundant barns to residential property and looking to create commercial property as well as tourist accommodation.


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Stifled

 

Ms Barritt said: “An emerging school of thought is that the EU subsidy regime may have stifled innovation and entrepreneurial decision-making among some farmers.”

 

She was joined at a Developers’ Club meeting earlier this month at Suffolk Food Hall by William Hargreaves, director and head of rural at estate agents Savills’ Ipswich office.

 

He said farmers in the east of England were seeing the political landscape as an opportunity rather than a threat.

 

“They are attempting to mitigate uncertainty by listening to new ideas and embracing innovation,” he said.

 

“The concept of natural capital is a prime example of this and one which farmers and landowners will have to grasp if they are to take advantage of new Government policy.

 

“Increasingly they will have to find new ways in which the public can benefit from their land ownership if they want to diversify their income.

 

“To that end, it will be the farm business that evolves into a consumer-focused, environmentally friendly brand, differentiating itself in the marketplace, which is set to thrive.

 

“New development opportunities will no doubt play a part.

 

“Whether it is converting an existing property into a holiday let, exploring the potential for recreational activities or selling parcels of land for new housing – dynamism and diversification will be key to any fruitful enterprise, as will the use of technology and adopting efficient farming systems.”

’Farmers have been diversifying income streams for generations’

 

MIXED farming has been an integral part of the British farming industry, with complementary farming businesses providing farmers with different income streams and products for generations.

 

And diversification was just another example of this, with farmers needing to spread their risk in the face of volatility in core farming activities.

 

Speaking at law firm Lodders’ rural conference, James Blanchard, Blanchard Enterprises in Oxfordshire, highlighted how his grandfather had run a combined pig, hop and cereal farm and he believed he was now taking the next logical step to spread the businesses risk among various enterprises.

 

“It was an integrated system which worked well for many decades. Integration is what we are trying to do now, just with a different mix,” he said.

 

His grandfather had bought the farm in the 1950s and worked with his father and uncle. In 2005, after a short career in farm and estate management, Mr Blanchard’s father invited him and his brother back onto the farm.

 

And their target was to ensure their business was ‘sustainable, modern and ethical’.

 

Mr Blanchard said: “We want to be seen to be doing the right think through future generations, employees and customers’ eyes.”

 

When he returned to the farm, 90 per cent of the farm’s income came from agricultural activities.

 

Six years on and Blanchard Enterprises was an integrated operation with complementary components.

 

The base of the farm was outdoor reared pigs alongside combinable crops, commercial, residential and equestrian let properties and a feed mill.

James Spreckley
James Spreckley

Opportunities for younger generations

 

James Spreckley, head of the Rural Sector team at Lodders, said with huge challenges providing enough income to support multiple generations, particularly for smaller farms, diversification could be an opportunity to bring in the younger generation.

 

He suggested there could also be tensions between the new land management schemes and obtaining the highest possible yields on the farm.

 

He added people would be driven to spread their risk in multiple enterprises.

 

“If you only have that single income stream, then you are dependent on it for profit and loss,” he said.

 

“Anyone prudent cannot say we have always done it like this.”

 

Farmers needed to now look around at their assets and decide what they had available to them and see what the options were which fit their farm and their local market. And the key to success was talking about the plans and what they were looking to achieve.

 

Mr Spreckley added: “I am not advocating people stopping farming. Like anything to do with agriculture you have to stand back and take a very broad view both of what is happening now and what can happen in the future.”

 

Farmers also needed to be aware of the consequences of their diversification, such as any impact on inheritance tax relief.

 

“The reality is there does need to be thought behind it," Mr Spreckley said.

 

He added it was easy to say they wanted to diversify into something like a farm shop, but businesses needed to understand if they were in the right place, had the right skills and if there were tax implications.

 

Diversification could be an exciting opportunity for the younger generation to take control of something on-farm.

 

“Many things seem to lead back to succession planning. The challenge is for the older generation wondering how much freedom they give to the new generation,” he said.

 

“Where we have seen this work successfully has been by the family not being afraid to have very open communication about what they want to achieve.”

 

He suggested businesses should first of all look for something they were enthusiastic about.

 

“It is quite difficult to decide to do something like glamping if you are not a people person,” he said.

 

“And think about where you are based.”

 

He added businesses needed to be in contact with their tax adviser and bank manager so they understood any implications of the business.

 

“I think the pitfall is to rush to get stuck in without thinking. For example, I had a client where the younger generation diversified on part of the farm.

 

“It went very well, now there is an element of tension between the diversified business and the farm,” he said.

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