Farmers holding back on investing in diversification, survey finds
24th October 2022
Nearly 40% of farmers said they plan to increase diversification in the next five years, but many are waiting for details on farm support systems and assessing the implications of the cost-of-living crisis.
The annual NFU Mutual diversification survey found that 37% of farmers plan to increase diversification in the next five years, a rise of 3% compared to 2021’s figures. Of those farmers who are yet to diversify, 11% said they now plan to do so in the next five years.
A further poll revealed that nearly half of those surveyed (46%) are currently diversifying to boost farm incomes. The most common reason (29%) was safeguarding their farm’s future. Other reasons included providing new opportunities for family members (18%) or seeking to make use of redundant farm buildings (7%).
The energy crisis is also having a radical impact on future farm diversification plans, NFU Mutual said. Its latest poll revealed that seven in 10 respondents (72%) believe renewables are now the enterprise most likely to be successful in the future.
In 2022, holiday accommodation – camping, glamping, caravan sites, B&B and holiday cottages – were the most popular diversifications developed by farmers, according to the findings. In joint second place were renewable energy and non-holiday property letting.
Earlier this year, research with over 1,650 farmers revealed that income from diversification represented 12% of a farm business’ total income (down from 16% in 2021). The post-lockdown ‘staycation’ boom supported income from ag tourism, but a rise in farm output prices pushed overall farm income above the previous year’s figure, NFU Mutual said.
“Not surprising” plans are being paused
NFU Mutual farm insurance specialist Chris Walsh said: “For many farmers diversification is now essential to keep a decent income flowing into their business with high input costs seriously affecting profitability in every sector of agriculture and horticulture.
“Today farm diversification is a sophisticated sector of the rural economy, providing significant income and employment opportunities in the countryside. It also gives the public the opportunity to visit the heart of our spectacular countryside and enjoy our excellent food straight from the grower.
“Farmers’ renewable energy schemes are providing an increasing amount of the nation’s power, reducing reliance on fossil fuels and helping us towards the net carbon zero goal.”
Mr Walsh said he is “not surprised” that some farmers have put their plans on hold plans while waiting for further details of an expected new government farm support scheme. “For new ventures involving the public, such as holiday accommodation, food processing and retailing, it’s now vital to assess the likely impact of the cost-of-living crisis on public spending,” he concluded.
NFU Mutual has launched a new Diversification Hub to help farmers understand the opportunities and risks involved.
Diversification can trigger the need for a financial planning review. Partnership and shareholder agreements, wills, and protection cover should all be revisited to make sure they reflect the diversified business. Diversifying can also have significant impacts on your inheritance tax liabilities, NFU Mutual advised.
NFU Mutual chartered financial planner Sean McCann said before diversifying, it’s important to consider the inheritance tax implications, to avoid large and unexpected bills.
“Many family farms benefit from Agricultural Property Relief (APR) and Business Property Relief (BPR), which can reduce or eliminate inheritance tax on farming and other business assets.
“A key requirement in securing APR is that the land or buildings must be occupied for agriculture, so converting farm buildings and letting them out for non-agricultural use, such as workshops, storage units or residential letting, will normally mean that APR is lost.
“In order to get BPR, the land or buildings must normally be used for trading rather than investment purposes. Diversifications that involve collecting rent with minimal management or provision of services, are likely to be treated as investments and so less likely to qualify for BPR.
“Getting the structure of the diversified business right can help preserve valuable inheritance tax reliefs.”
Visit NFU Mutual’s new diversification hub for more advice and case studies: nfumutual.co.uk/diversification
NFU Mutual’s diversification checklist:
- Evaluate whether you have the skills, resources and commitment to make diversification work for you
- Thoroughly review your farm business and identify strengths and areas where you can add value to your existing model
- Make a full and frank assessment of your assets – including people, land, location and buildings
- Thoroughly research the market, local demand, and existing competition for your proposed diversification
- Work closely with planners and highway authorities to avoid problems when your plans are advanced
- Research the likely availability of local workers – often a challenge for hospitality or retail diversifications in remote locations
- Consider health and safety issues at planning stage to avoid having to make expensive changes later on.