Farm Diversification: Top tips for diversifying your farm business

Taking a practical approach when considering a new farm diversification will help farmers get into the right project in order to reap the benefits. According to a Defra report, 68 per cent of farms have now undertaken some form of farm diversification.

Bidwells associate Louise Newton said: “Diversification is becoming increasingly necessary and can provide a great way to boost farm incomes, create employment and add value to the farm. If the scheme seems to be viable, then now is a great time to embark on a diversification project, but make sure you make a proper assessment at the early stages, seeking professional advice where appropriate.”

One of the first things to consider is whether a potential diversification project will fit alongside the current farming activities.

“For example, a holiday cottage probably will not be very popular if it is next to the slurry pit or grain drier and, equally, you do not want members of the public wandering through a busy farmyard,” Ms Newton said. “You need to make sure that introducing any new uses to the farm will not result in a conflict of site users or impact on the operation of the agricultural business.”

CLA senior economist, Charles Trotman, suggested preparing a list of assets and their ownership status.

“Buildings, land, special features, location and skills should all be included. Which items do you own, which do you rent,” he said, adding farmers needed to consider their business structure and any tenancy issues. Mr Trotman also advised drafting a business plan.

The chosen project should suit the farmer, the assets and relevant planning policies, he said. “Carry out market research and prepare a business plan, including a cashflow budget. Make sure that the business plan is flexible and can be adapted to changing circumstances.”

Planning permission for your farm diversification

MOST diversification projects will require some form of planning permission, so it is hugely important to assess whether consent is likely to be achievable before getting too carried away with the project. Ms Newton recommended seeking professional advice to assess what permissions are needed and if the proposal meets planning policy requirements.

Mr Trotman said farmers should look at national, regional and local planning policies and consider the planning history of property and any specific designations or protection. He suggested farmers contact the Local Planning Authority to arrange a site visit and discuss the proposal. Mr Trotman added rough sketches were useful. It is also beneficial to meet the conservation officer if relevant and amend proposals to address any concerns raised.

Contacting the local community to obtain support was also important. Farmers then needed to prepare and submit their proposal, completing all necessary forms such as a design and access statement and listed building consent.

“Prepare drawings, check fees. Consider including a Farm Development Programme which provides useful background information,” he said. “Obtain the reference number for your application. You can use this to track progress – some authorities now have an on-line facility for this purpose.”

He added if successful, farmers needed to consider any conditions, further enquiries and other regulations. “If successful, do any conditions attached to the permission cause a problem and are there any other regulations or licences required? If unsuccessful, find out why and consider whether it is worth appealing.”

Demand

Farm diversification is only beneficial if it helps to boost farm income, Ms Newton said.

“Certain schemes will work really well in one part of the country but not somewhere else,” she said. “Market research is really important to as it ensures there will be sufficient enough demand for the proposal before making the investment. Again, this is something you can seek specialist advice on.”

If considering office or business lets, access to high-speed broadband and other services will be hugely influential in finding tenants.

Management of the diversification

Many farm diversification schemes will require a lot of time and input to establish and manage.

Ms Newton said: “You need to make sure this is something you have the time and expertise to run inhouse, or otherwise find an appropriate tenant, operator or property manager to assist, although this will impact on income.”

Diversification will almost always require initial investment. Farmers were advised to understand the costs and likely return on your investment at the project’s early stages.

“Increasing prices in building materials and labour will have an impact on the viability of a project,” Ms Newton added. “There may be opportunity to offset some costs onto incoming tenants, or enter into a joint venture. Borrowing may also be required.”

It is important to seek tax advice as taking land or buildings out of agricultural use can impact on future inheritance tax liabilities, or could trigger a capital gains tax payment upon a sale. Building conversions could also trigger business rates and council tax, which you would be liable for during vacant periods.

If introducing new uses to your farm, there may be increased insurance requirements. This is particularly relevant if members of the public will be accessing the farm.

Ask whether a new, separate business would be appropriate. Mr Trotman said: “Consider business rates, insurance, utility services, VAT, funding, health and safety, training and the effect on existing business.”