Farm diversification – things to consider?

Frank Smith, Managing Partner at agricultural law specialists, Frank Smith & Co Solicitors

Farming has traditionally been dependent on subsidies. This is based on the need to produce enough food to feed the country’s population, and perhaps the fear that there will not be sufficient food to do so if farmers are not supported. From a practical perspective, this makes farming inefficient as a business. Businesses function on making profits, and to do so farmers often diversify their products and expand their markets.

There is no reason why farmers cannot follow the same path as other businesses and diversify while continuing to farm. This can be done by diversifying farm resources that are not used to the maximum. According to a government report issued in 2023, 69 per cent of farm businesses in England had some diversified activity in 2022/2023, including (a) letting buildings for non-agricultural use; (b) generating solar energy; (c) tourist accommodation and catering, and (d) processing and retailing farm produce. The report further states that the diversified income accounted for a quarter of the total farm business income.

Some diversifying activities carry more legal consequences than others. For instance, letting buildings for non-agricultural use (known as conglomerate diversification) may entail applying for a change of use under the Town and Country Planning (User Classes) Order 1987. If a disused barn is to be turned into office units, apart from the change of use, some development would be needed, and this would require planning permission. Once the barn is ready for occupation, leases with the prospective tenants must be drafted. These should be drafted carefully as they incur legal costs.

Other ways of diversification carry less initial outlay because they are concentric to farming but tend to be less profitable. Examples include stabling for horses or a pick-your-own fruit or a farm shop. In the case of generating solar energy, farmers can lease land to renewable energy developers for the installation of solar panels, and with the land in England being typically flat and open, it is often suitable for such renewables. 

Any decision on diversification must consider the type of farming taking place, whether it is growing crops, keeping livestock or a mixed use of both. Farming should remain the main purpose of the enterprise, not least to ensure that tax incentives such as relief from IHT are preserved. Furthermore, successful diversification requires a sound core farming business, and diversification should be seen as providing additional income, rather than as a way to correct a failing farming business.

Additionally, any diversification should be supported by the correct infrastructure existing already in a farm. There is no point in starting a farm shop if the farm is difficult to access or to offer business premises if it is not possible to provide broadband and good mobile reception. Due diligence before implementing any diversification is therefore essential.

Having a sound business plan makes it easier to obtain grants for farm diversification from the Rural Fund or other private enterprises. The Rural Fund is being run by the local authorities. Around 117 local authorities have been provided with financial allocation, and the funds are spread over two financial years: 2023/2024 and 2024/2025.

In conclusion, farm diversification can be very successful as additional income, providing the core farming business is sound, and research and due diligence are carried out before implementation. Loans and grants are available, but a good business plan is essential to obtain them.

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