The benefits and risks of farmers diversifying to bolster income

Anderson Fossett, of rural insurance broker Lycetts, examines the benefits and risks of farmers diversifying into alternative rural enterprises.
 
Re-evaluating and re-invigorating business models has become commonplace amongst the farming community.

Steadfast in the face of uncertain futures, farmers have increasingly turned to alternative methods of earning income, outside of the traditional, long-established agricultural revenue streams.  

According to the latest government figures, 68 per cent of UK farmers have diversified, alongside running a traditional working farm. 

As incomes and profits continue to suffer, with reduced demand for meat and dairy due to climate concerns and diet changes and crop yield volatility amongst the contributing factors, more farmers are expected to take up the diversity baton. 

But rather than a sign of decline, diversifying business activities can offer farmers considerable scope for improving the economic viability and securing the future of their farm businesses, with a significantly beneficial bi-product being the boost to the wider rural economy.  

A total income of £734 million was generated from diversified activities by 38,400
farms in 2019/20, according to the latest Farm Business Survey, with an average diversified income of £19,100 per farm.

By unearthing their entrepreneurial spirit, exploiting their business acumen and identifying trends in consumer behaviour, many farmers are able to restructure their operations and successfully launch new, exciting – and more importantly harmonious – enterprises. 

Whilst farmers are keen to break ground and take advantage of the bountiful opportunities available to them, being aware of the potential liabilities is an integral first step.

After all, the policies which adequately covered farming activities will not cover a new energy, tourism or recreational venture. 

The rise of rural tourism

We may be emerging from the pandemic but the UK staycation is set to stay.

Diversifying into recreational and tourism-related activities – from holiday lets, camping and farm-stays to cafes, food and music festivals – can be a timely and prudent business decision, unlocking substantial revenue returns.
 
However, as with any new venture that involves inviting the public onto farm premises, legal liabilities and potential claims for damages loom large. 

Health and safety risk assessments, alongside measures to provide a safe environment for the public, are an essential pre-requisite. Considerations include adequate signage and secure perimeters between visitor access and the working land, the provision of hygiene facilities, and comprehensive public liability insurance. 

Insurers may request an early on-site inspection to ensure quality standards are being met in the new development.

Food for thought 

Another trend to gain traction in the pandemic was farm shops, as more people turned to local produce in the wake of empty supermarket shelves, close contact concerns and a growing desire to support local businesses in times of crisis.  

Diversifying into the processing and selling of food calls for a thorough understanding of relevant legislation and regulations. These will cover key areas such as trade descriptions, health and safety, food safety, weights and measures.

Early involvement of your Environmental Health Officer (EHO) to ensure good practice regarding production and hygiene is imperative.  Trading Standards, meanwhile, will need to be involved in areas such as labelling, weights and measures.

From an insurance perspective, Employers’ liability will cover any risks associated with processing and production undertaken by staff. 

A suitable level of products liability cover should be in place in the event that sold produce inadvertently cause illness amongst customers. Although products liability is usually included alongside public liability insurance for farms, the indemnity limits, commonly around £5 million, may be deemed inadequate so farmers should double check their policy. 

Plugging into new ventures

Low-carbon renewable energy schemes, such as solar, biomass generators or wind turbines, have seen significant uptake amongst the farming community in recent years.

Cuts to government support created a barrier to investment for many but the fall in technology costs has helped the market retain its buoyancy and attractiveness.

Before choosing this route, the disparate quality standards of equipment should be taken into consideration. For equipment deemed less reliable, premiums may prove extremely costly and in some cases, uninsurable.

Cover is available for renewable energy construction and installation and specialist engineering policies can protect against equipment breakdown and associated losses of income. 

Don’t go it alone

There is no doubt that diversification activities can pay dividends – ‘fortune favours the bold’, after all – but farmers should not take a gamble on their investment.  

Farmers should rely on shrewd and calculated business planning to ensure the viability and stability of new ventures, not good luck.   

A tough and complex transitional period can be expected and gaps in knowledge and experience are inevitable. 

However, help is at hand and experts in the field of renewable energy, including specialist insurers and intermediaries, can help farmers identify and avoid pitfalls before they become costly – and successfully set them on the path to realising their project’s full potential.  

For more information, visit lycetts.co.uk.