Protecting your future-proofed farm

Edmund Sword, associate director at farm insurance specialist Lycetts, discusses the risks and insurance considerations for farmers thinking of diversifying.  

The UK farming industry is currently navigating a rising tide of uncertainty, faced with a myriad of challenges, from increasing operating costs and decreasing food prices, to slashed subsidies and Brexit limbo.  

In order to safeguard their incomes, secure stability and bolster their businesses, more and more farmers are turning to alternative revenue streams.  

Diversification offers considerable scope for improving the economic viability of many farm businesses – with farmers’ access to ample space, sought-after rural settings and established business acumen helping them thrive in this field.  

According to DEFRA, 65 per cent of farms had diversified in 2018/19, with income from diversified activities amounting to £740 million – a six per cent increase on last year.

As well as more traditional forms of diversification, such as renewable energy and letting buildings, in recent years there has been upturn in more unusual ventures, such as eco-glamping, breweries, specialist flower-growing, and yoga retreats.
Farmers are understandably keen to cash in on the ‘next big thing’ – but as the opportunities to diversify multiply, so too do the risks. 

Think before you leap

New, non-farming ventures require shrewd business planning, judicious risk management, and prudent insurance arrangements to protect against potential liabilities.

Thorough research and careful planning, including seeking professional advice and obtaining the right protection, needs to be conducted before ground is broken on any new business venture.  

Many projects will involve members of the public visiting the farm, so health and safety risk assessments, along with measures and procedures to ensure a safe environment for the public, such as adequate signage and hygiene facilities, are an essential consideration for the public at design stage.  

Public liability insurance cover is a must – and insurers may request an inspection of the site to ensure that quality standards and requirements are being met.  Farmers may also be employing staff for the first time, so employers’ liability cover would also need to be obtained.

Diversification into food processing can prove lucrative, but risk management in this area calls for knowledge of the relevant legislation and regulations covering everything from trade descriptions to food safety. Environmental Health Officers should be involved at an early stage to ensure good hygiene and production practices. Areas such as labelling and measures, will call for the involvement of Trading Standards.

Products liability insurance should also be in place should sold produce inadvertently cause illness. Employers’ liability will cover risks associated with processing and production processes undertaken by staff.

For farmers investing in renewable energy schemes, insurance cover is available for renewable energy construction and installation and specialist engineering policies can be taken out to protect against equipment breakdown and the associated loss of income

Farmers should be mindful of the different quality standards of equipment and installations, as premiums may prove extremely costly for equipment deemed less reliable. 

As well as protecting customers and employees, farmers should be thinking about how to protect their new business – particularly if it will be a main source of future revenue.  

As witnessed by the recent coronavirus outbreak, risks can be unpredictable and unexpected so ensuring that your income is protected, such as with a business interruption policy, can provide some peace of mind.  

When embarking on diversification, a lack of knowledge and experience in some key business areas is inevitable – which is even more so for ‘out of the box’ ventures.  

A specialist insurance broker, however, can help farmers avoid pitfalls before they become costly, and in some cases business-critical, liabilities.