Farming News - Farmers turn to diversification amid looming threats from economic shifts
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Farmers turn to diversification amid looming threats from economic shifts
Almost of a quarter (22%) of farming business owners have identified the need to diversify their operations to ensure survival, research from full-service law firm Shakespeare Martineau has revealed.
Key reforms to inheritance tax – widely seen as unfavourable to landowners – and a rise in employer national insurance contributions could dramatically increase the financial burden on farmers. Combined with the looming and accelerated phase-out of the basic payment scheme by 2028, pressure to find alternative income streams is mounting.
In a survey of farm business owners, 22% say diversifying their operations is essential for the business' survival, while 30% plan to make changes before passing it onto the next generation.
Amy Cowdell, head of agriculture at Shakespeare Martineau, said: "Farming businesses are being squeezed from all sides. The implications of the Autumn Budget are especially stark for farming families, with higher tax liabilities threatening the viability of passing farms to the next generation. The removal of subsidies, combined with tax reforms, places an even greater onus on farmers to innovate.
"Diversification is nothing new. However, more traditional options – such as transforming old outbuildings into commercial units, creating wedding venues out of barns, and building holiday cottages – are now complemented by more novel enterprises, like selling eco system services. While diversification can be a lifeline, it can also be fraught with challenges. Every move carries legal, tax, financial and operational risks."
The Environment Act 2021 mandates that developers deliver at least 10% biodiversity net gain (BNG) on projects, providing an opportunity for farmers to sell offsite biodiversity units to developers by engaging in rewilding efforts.
While 44% of farming businesses see this as a chance to boost income, 22% remain sceptical about its benefits, particularly given the long-term land commitments BNG agreements require.
Amy said: "Values should also be carefully considered. While a BNG agreement may look good income-wise, land needs to be set aside for a minimum of 30 years, which could reduce its capital value and also may take the land away from food production and potentially more profitable revenue streams (such as hospitality or housing development).
"As farmers adapt to a rapidly-changing industry, the need for diversification is clear – but so too is the importance of understanding the legal, tax and financial frameworks that underpin these opportunities. Diversification may help to secure the sustainability of farming businesses for generations to come, but careful planning and professional guidance is key."