Don’t let diversification be a distraction
Continuing price and market volatility is leading farmers to look for additional income streams. This has put diversification at the forefront of farming and is most successful when it complements the existing business, says NatWest’s Agriculture Relationship Director Jo Wingfield.
When considering the diversification of an existing farm business, Jo cautions against projects which distract from the core business.
“Ideally you are as ‘hands off’ as possible while still making it profitable. It may look good on paper, but you can’t be changing beds every day; you are still a farmer with an important core business to run.”
The most successful diversifications complement the farming enterprise, she says. For example, you may be better converting an existing barn or redundant farm building for holiday lets rather than taking out grazing land by covering it with yurts.
Banks and other finance companies are currently very supportive of diversification when it supports and enhances a farming business positively. “There’s always a way to obtain money,” suggests Jo. “Most farms are asset rich, making loans safer from a bank’s perspective.”
But to do this, Jo recommends employing an agricultural consultant. “They can help you make the firm projections you’ll need to secure finance. With base rates higher now than in the past, borrowing is sometimes more difficult so take the time to produce some decent figures.”
“For any development project though, make sure you have enough finance for the inevitable overspend - 20 to 30% above the expected is a good estimate,” she suggests.
Diversification can include accommodation, food & drink, or energy production
Many farmers looking to diversify in the South West are unsurprisingly choosing options relating to leisure and tourism, such as glamping and holiday lets, although farm shops and vending businesses are also popular.
And a growing area of diversification as a direct result of rising energy costs and environmental goals is renewables, with financial incentives supporting this trend.
“There is an appetite for projects involving renewables at the moment,” says Jo. “NatWest’s ‘Green Loan’ is just one example of how businesses are being supported to invest in sustainable forms of energy, making them a good option for diversification right now.”
Jo’s top tips for successful diversification:
Don’t choose something which adds strain to the core business
Make sure your costings are right and not taking cash away from the farm
Remain aware of the changing financial situation, such as fluctuations in milk price, and keep assessing your costs; your bank will appreciate it!
Farmers are currently seeing the biggest changes in agriculture for more than 50 years. As a mutual insurer, we’ve stood by South West farmers since 1903 and through our Future Farming Programme, we are helping our Members and the wider farming community navigate the changes ahead in this transformative time.Future Farming Programme