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Diversifications: Where are the opportunities?

Sponsored by Shawbrook

‘Uncertainty’ has been on the lips of every farming business, bank and adviser for the last three-and-a-half years and things are unlikely to get much clearer for a while in terms of trade, standards and financial support.

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Charlotte Davies, head of renewable energy and agriculture, Shawbook Bank.
Charlotte Davies, head of renewable energy and agriculture, Shawbook Bank.

That is why innovating, generating new income and spreading risk are going to be key to the stability of many farms.

In 2018/19, income from agriculture made up just 12% of farm business incomes, according to Defra, while diversifications made up 26%, direct payments 54% and agrienvironment schemes 8%.

With no long-term promises about farm support, it is essential to shift the balance away from reliance on subsidies.

That is why we have created this guide to diversification.

We have looked at four trends shaping consumer behaviour which farmers could capitalise on, delved into businesses already making a success of them and sought advice from experts.

Increasingly, successful farmers are going to spend less time in the tractor cab and more time creating, innovating, specialising and marketing their enterprises.

Farmers are entrepreneurial, adaptive people, but they will need to keep learning, use the drive and skills of the younger generation and embrace change.

Food production has never come under such scrutiny.

However, produce that is safe, nutritious, ethical and sustainable has never been more in demand.

Farming’s role in managing the environment is Charlotte Davies, head of renewable energy and agriculture, Shawbook Bank.

also under the spotlight, yet people are increasingly in search of green space, peace and quiet.

So while there are challenges, there are also opportunities for those who want to pursue them.

Consumers are demanding farmers do more to tackle biodiversity loss.
Consumers are demanding farmers do more to tackle biodiversity loss.

Farmers are naturally entrepreneurial and, for many, diversifying income is going to be a key tool enabling them to weather the economic changes ahead and loss of direct support payments.

There are opportunities for those willing to understand changes in consumer behaviour and society’s demands and we have picked four which we think deserve some thought and investigation.

This is about looking beyond the common diversifications – whether that is a premium food product with a great story and carbon-footprinting, a unique experience on a farm, or planting trees and selling the carbon credits to corporations.

Not every farming business will need or want to diversify – for some, knuckling down and concentrating on specialist operations and economies of scale is going to be most sustainable.

For others, now is the time to look at alternative enterprises, reduce reliance on direct payments and unlock those opportunities.

The green economy is worth an estimated US$4 trillion (£3tn) globally – about the same size as the fossil fuel sector, according to FTSE Russell, global market analysts.

The value of carbon trading alone soared 250% in 2018 to €144 billion (£122bn), say analysts at Refinitiv.

Public concern for biodiversity, climate change, and the environment is helping to fuel this, forcing big companies to look for ways to improve their credentials and sustainability.

 

At the same time, consumers are demanding farmers do more to tackle biodiversity loss, environmental degradation and climate change.

This creates a growing opportunity for farmers who can offer environmental services, such as carbon sequestration and biodiversity offsetting, while also showing how farming is part of the solution.

According to Susan Twining, chief land use policy adviser at the CLA, there are three main pots of money which farmers could tap into: The anticipated new Government agrienvironment scheme, offsetting from housing developments and carbon trading.

Stats

  • 72%

 

Millennials who would rather spend money on experiences than on material items (Source: Harris Group)

 

  • 64%

 

Global consumers who say experiencing authentic culture is the most important thing when on a holiday (Source: Visit Britain)

 

  • 67%

 

Shoppers who say they are sometimes tempted to spend more on better quality products (Source: IGD ShopperVista)

 

  • Flavour

 

The biggest factor consumers use in identifying quality (Source: IGD ShopperVista)

 

  • ‘Mindful purchasing’

 

Consumers increasingly want products with provenance which are sustainably produced (Source: Seed Group

In addition, local authorities, water companies and the Environmental Agency are now paying farmers and land managers to tackle water quality issues, flood management and habitat losses.

Premium food Demand for food produced to high welfare and environmental standards is gaining traction, as is demand for premium quality products.

Charlotte Scott, consumer insight director at analysts Kantar Worldpanel, says: “The premium food market is in growth as people trade both up and down.” Many of the most successful premium brands are those offering a twist on the traditional, such as ice cream which is healthier, or nitrate-free bacon.

“It doesn’t always have to be health,” adds Ms Scott, “but to charge premium you have to offer something new.” Health, convenience, welfare and sustainability are all important messages, as is less plastic.

There are fewer premium products in meat and fresh produce, but that does not mean innovative products cannot break in, she says.

Farmers are in a strong position to tell compelling stories, says The Seed Group, a marketing agency specialising in farm and food brands.

“Premium today means so much more [than just exceptional quality] – a move away from materialistic needs and a move towards more mindful purchasing.

“Consumers are seeking products with clear provenance which are sustainably produced and ethically-sourced.

 

A more considered approach to meat, in particular, is set to be a future trend in 2020.

 

This means well communicated marketing around higher standards will get consumer attention.”

 

Whatever the messaging, farmers should not lose sight of the importance of taste, warns Andrew Fearne, professor of value chain management at the University of East Anglia.

 

According to a survey by ShopperVista and IGD, shoppers are now most likely to use flavour to identify quality (37% in 2019 vs 32% in 2018).

 

Opportunities exist in both the domestic and international markets.

Mini destinations and experiences

 

UK urban dwellers spent £25bn on tourism in rural and seaside communities in 2018/19, according to the Tourism Alliance.

But tourism is changing, with a focus on authentic, ‘real’ experiences and skill learning increasingly what guests expect when staying overnight somewhere; a sort-of ‘mini destination’ complete with high quality accommodation, food and activities.

Sue Crossman, senior consultant at Team Tourism, says: “People have got enough stuff, so they want experiences instead.

On holiday they value experiencing life as a local, or getting involved in a craft or occupation that gives more meaning.”

 

Building experiences into a brand is, therefore, imperative, particularly in a way which encourages people to share their experiences online, where many travellers now make their decisions.

Online systems which allow last minute bookings is also important, since younger travellers are more likely to make impulsive purchases once in an area.

Farmers have a key asset though.

In a world which is increasingly concreted over and stressful, green space, nature and peace are things many are prepared to pay for, says diversification consultant Michael Mack at The Rural Consultant.

More from Shawbrook

More from Shawbrook

For more from this series, visit the Shawbrook hub

Sponsored by Shawbrook
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