• Survey shows more farmers plan to diversify to boost farm incomes over long-term
• Farmers re-thinking diversification plans as new farm support scheme details awaited
• Leading rural insurer NFU Mutual launches diversification hub to help farmers plan successful schemes

Farmers see diversification providing a larger part of their incomes, but are currently holding back on investment, research from NFU Mutual has revealed.

The leading rural insurer’s annual diversification survey*, reveals today (Friday 21 October) that 37% of UK farmers plan to increase diversification over the next five years, up 3% on 2021’s figures.

However, the research also showed that farmers have held back on diversification this year as they await details of farm support systems and assess the implications of the cost-of-living crisis. The drop of 4% to 33% this year follows a sharp increase in 2021 when farmers were able to implement diversification plans following the Coronavirus pandemic.

A further NFU Mutual poll** shows that most farmers (46%) are currently diversifying to boost farm incomes, with safeguarding their farm’s future the second most common reason (29%). Other reasons for diversifying are providing new opportunities for family members (18%) while 7% are seeking to make use of redundant farm buildings.

Research carried out with over 1,650 farmers across the UK earlier this year found that income from diversification represented 12% of a farm business’ total income (down from 16% in 2021). Whilst a post-lockdown staycation boom supported income from ag tourism, a rise in farm output prices pushed overall farm income above the previous year’s figure. 

Against a background of uncertainty over new farm payments and more recently an expected new direct support scheme, 11% of farmers yet to diversify say they now plan to do so in the next five years.

Future farm diversification plans are also being radically changed by the energy crisis. NFU Mutual’s latest poll *** reveals that seven in ten respondents (72%) believe that 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, NFU Mutual’s research shows. In joint second place was renewable energy together with non-holiday property letting.

Chris Walsh, NFU Mutual Farm Insurance specialist 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.

“We’re not surprised to see that some farmers have put a hold on their plans while waiting for more 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.   

“NFU Mutual’s new Diversification Hub has been launched to help farmers understand the opportunities and risks involved.”

Financial Planning

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.

Sean McCann, Chartered Financial Planner at NFU Mutual, explains: “Not only can diversification open up new sources of revenue, it can also offer business opportunities to younger members of the family.

“However, before making any changes, it’s important to consider the inheritance tax implications, to ensure your family don’t end up with a large and unexpected tax bill in the future. 

“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.”

For more information including case studies on successful diversification schemes and advice on insurance and risk management visit NFU Mutual’s new diversification hub

at: nfumutual.co.uk/diversification

NFU Mutual 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