Is Farm Diversification Essential for Farm Survival? Yes! And let’s go further…is farm diversification essential for farms which have already diversified? Probably!
It was the late Harold Macmillan, when Prime Minister, who summed up the unpredictability of British politics as “events dear boy, events”. It’s difficult to recall a time when there were so many ‘events’ currently affecting farming businesses in the UK. One has followed the other. From Brexit, an Agriculture Bill, an Environment Bill, Climate Change, and on to Covid-19 and the impact of lockdown.
It is now very clear, farming and farming support is rapidly changing. Some will be happy we are no longer constrained by the Common Agricultural Policy though others may lament the loss of vocal support from the many small family farmers across Europe when it comes to fighting for government support. We know the Basic Payment Scheme is being phased out and some bigger farming enterprises will feel the draught sooner and harsher than others. We know we have a new Environmental Land Management Scheme (ELMS) to come but it is not a replacement for BPS, the era of direct payments is ending. One could look at ELMS as one would a Countryside Stewardship Scheme; there is financial support, but it may cost time and money.
Farm diversification is nothing new. For decades, innovative farmers have been looking for ways to add value to their products. Farm Stay UK, the body promoting farmhouse accommodation, was formed in 1983 as the Farm Holiday Bureau. For years, families have enjoyed affordable camping holidays where the farmer has provided a field and a tap! What is new, is the level of sophistication demanded by today’s customer. If you still think you do not need to diversify, just remember that the profit from farming in the UK, until now, has been equal to the amount of financial support the UK received from Brussels.
It is estimated that during the Coronavirus lockdown periods, the public’s enforced savings levels have increased by £200bn, and some forecast a spending bonanza once Covid restrictions disappear. Some commentators suggest that £20bn of those savings will be released in the second half of 2021, so is your business ready to capitalize on any boom? Since Prime Minister Johnson announced his road map, and with foreign travel unavailable for some time to come, bookings for UK holiday accommodation have exploded. As a frequent guest on farms, I do detect a swing to more self-catering accommodation. Many of my farming friends have run highly successful bed and breakfast enterprises but it is a tie, it is intrusive and as the next generation move into the farmhouse they do not want to bother with guests. Covid-19 adds another dimension to the safety of your own family as well as your guests.
Some farm businesses have unwittingly become owners of a let property portfolio. The introduction of Permitted Development Rights created the opportunity to convert old and redundant farm buildings for a variety of uses, residential, office space and holiday cottages. This has created business opportunities without impacting family life. Over the last thirty years the increase in mechanisation on farms has reduced staff levels, freeing up properties, originally tied cottages, for more lucrative uses.
The ‘hot tub’ factor is alive and well. It was once suggested that installing a hot tub would increase letting rates by 20% but with one national holiday letting agency recently telling us that ‘hot tub’ is the most searched for feature on their website it would appear to be more than that know. It does however, concentrate the mind on levels of investment and returns; if you expect to attract a high rent for a cottage it must be high quality which means higher investment. At the same time don’t invest in high quality if you are in the wrong area to attract the right clients. I once stayed on a farm just off Hadrians Wall where apart from our cottage there was a bunk house, catering for walkers where you were provided with bedding and a towel, you made your own bed, and you stripped the bed in the morning before you departed. Cheap and cheerful, but a fantastic return on capital!
Glamping remains for many, a novel and often untried experience and comes in all shapes and sizes, with over 26,000 sites worldwide. At FOLK2FOLK we have financed many such sites, especially on smaller farms, which raises another issue. After meeting one of our clients before site work commenced, we discussed the implications of cash flow from the glamping operation in relation to his whole farm business. He described himself as a farmer with a diversification, I called him a businessman who just happened to be based on a farm. Farmers and landowners enjoy some attractive tax breaks, such as Agricultural Property Relief, but they must farm!
Despite initial fears about trading, farm shops seem to have weathered the Covid-19 storm. Enquiries to FOLK2FOLK regarding finance for new farm shops suggests that there is still capacity for more such retail outlets. Research from the Farm Retail Association (FARMA) suggests that one third of households now make purchases from farm shops. Some, such as the Chatsworth Farm Shop, are real visitor attractions able to capitalise on the massive footfall created by visitors to the house. Some have integrated a café to make shopping a social occasion. A recently developed FOLK2FOLK funded farm shop has enabled the farm to sell its own milk at a retail price instead of a wholesale price at the same time adding value to the produce from other farmers in the locality.
The ‘Great British Outdoors’ is where we farm so we must put up with the vagaries of the British weather, but our location gives us several business advantages. We have space to park and play. We can be noisy without upsetting neighbours. We are surrounded by an ever-increasing urban society seeking leisure opportunities and entertainment. We have natural resources and features where some improvements will credit us with a biodiversity net gain. And importantly, we have no problem keeping 2m apart!