COULD DIVERSIFICATION BE THE RIGHT DIRECTION FOR YOUR AGRICULTURAL BUSINESS? Introduction t has been well publicised that certain In response to those questions, Hugh parts of the agricultural sector are James has worked with the Country Icurrently experiencing considerable Land and Business Association difficulties. (CLA) to explore trends around the diversification of agricultural £70,200 For example, the average Farm businesses. With additional Average Farm Business Income Business Income (FBI) on dairy farms commentary from respected on dairy farms fell by around 9% to £70,200, driven agricultural entrepreneur David by lower milk prices and 4% for cattle Morgan MBE (owner of Trostrey Court & sheep (lowland) farms. Farm and founder of Morgans of Usk), both Hugh James and the CLA What are agricultural businesses doing discuss how diversification has the in response to these difficulties and potential to increase income and the what does that mean for the future factors to consider before embarking Content profile of the sector? on such a venture. Page 3 Introduction Page 4 Authors Page 5 Foreword Page 6 What is agricultural diversification? Page 8 What trends has the CLA seen in relation to types of diversification? Page 9 David Morgan Case Study Page 13 Legal issues for consideration Page 14 Thinking about the future Page 18 Family considerations All data and statistics contained within this document supplied by the Welsh Government. Page 19 Conclusion All content correct at time of print. Please contact [email protected] for further information or enquiries. 3 Authors Foreword iversification among agricultural businesses, in place of or alongside traditional farming activity, has grown exponentially over the past 20 Dyears. It seems likely that this trend will continue, in light of both the financial challenges facing farmers and agricultural landowners in the current Around 3,100 farm businesses in economic climate, and the obvious opportunities that diversification offers. Wales were engaged in producing Diversification is a broad topic, for example, tourism and leisure is in a very different output from diversified activities category from energy production, but any form of diversification presents its own during 2013-14, with 2,100 farm advantages and challenges. This document explores the views of individuals Rebecca Williams Matthew Evans Rob Phillips Andrew Jones businesses generating diversified operating or advising within the sector as to the future of diversification, the Director – Wales, CLA Head of Wealth Management Services, Partner, Head of Property Litigation, Associate within Tax, Trusts and Estates, output other than rent. potential benefits to doing so and the issues to be aware of. [email protected] Hugh James Hugh James Hugh James [email protected] [email protected] [email protected] Rebecca leads the CLA in Wales. The CLA is a membership Matthew has overall responsibility for Rob advises on agricultural tenancy Andrew specialises in wealth organisation that represents the Hugh James Wealth Management disputes, energy sector property preservation and estate planning with a interests of landowners, farmers and Services and frequently acts for disputes, contentious planning, particular emphasis on tax planning for rural businesses in England and agricultural clients. Matthew also wayleaves and easements and those with farming or business interests, Wales through lobbying government specialises in will and inheritance education sector property disputes. and overseas issues. in Cardiff, London and in Europe. disputes, often in the agricultural sector. 3,100 Farm businesses in Wales engaged in producing output from diversified activities 4 5 What is agricultural diversification? Diversified enterprises contributed around £27 million (2%) to farm Agriculture has always been and remains the cornerstone of Welsh rural communities and their business output in 2013-14, having economies. As such farming and land use is hugely important and will continue to be so. increased from around £22 million in 2012-13. Farm business income from armers often simply just want to Why is diversification becoming diversified enterprises increased to farm but the reality of the current more prevalent? £15 million (5% of farm business market is that they frequently F The CLA is seeing a whole host of new ways in income) in 2013-14, from £14 need additional income streams to The increase in diversification is perhaps million in 2012-13. ensure the ongoing viability of their no great surprise. Clearly the main which farmers have diversified their businesses business. Diversification typically involves driver is economic and the need to get broadening a business’s activities away additional income, to keep the family from its existing or traditional core ‘on the land’. operations and using land and assets in The average diversified output for farm businesses new or innovative ways. Changes under the Common Looking to the future, there are major Commodity prices are low to the extent with diversified activities was £8,800 per farm in that, in some sectors and most notably Agricultural Policy have also increased changes on the horizon that make 2013-14, compared to £7,700 in 2012-13. Average Common examples of intra-agricultural milk, the sale price is lower than the cost the emphasis on environmental benefit the future funding for agriculture diversification are moving into food of production; a position that is clearly over direct subsidies. Accordingly, the uncertain. For example, if Britain votes enterprise income from diversified activities in production and rearing different stock unsustainable. emphasis on production has decreased to leave the EU, the whole position 2013-14 was £4,900 per farm, with tourist such as rare breeds. Diversification away over time. Furthermore, the percentage could change dramatically, which is accommodation and catering producing an from agriculture often takes the form of Recent government policy has also of European Union funding that goes something the debate on the subject average enterprise income of £6,800 per farm. tourism activities, contracting or, in recent been supportive of diversification. For into the Common Agricultural Policy does not really seem to have yet years, renewable energy production. example there has been a series of has also decreased over the same touched upon. That lack of certainty is grants made available under the Rural period and it seems highly likely that another reason why farm businesses The CLA is seeing a whole host of new Development Plan to support diversified it will continue to decrease as the are looking for alternative and secure ways in which farmers have diversified enterprises. challenges facing the EU change (for income streams. their businesses. example terrorism and migration). 6 7 What trends has the CLA seen in relation David Morgan Case Study to types of diversification? n recent years there have certainly What practical advice would You should also talk to your avid Morgan MBE is an art biomass plant and has renovated David is 74, still works every day with been opportunities to use land to the CLA offer to landowners/ neighbours because co-operation and entrepreneur from Usk who and let the farm’s once-derelict, but his wife, daughter and one of his sons, Igenerate alternative income through farmers who are considering collaboration are key to meeting policy Dhas embarked on a number of historic and listed farm buildings. and was the president of the Royal renewable energy but changes in diversification? drivers. Perhaps look for opportunities successful diversification projects. Welsh Agricultural Society for 2015. He Westminster government policy have to work with others. Early research and His childhood passion for building was awarded the MBE in the Queen’s £48,000 led to uncertainty and may affect this As with any business, planning and advice could save a lot of trouble and Following the death of his father when things and a self-taught skill as a New Years Honours 2015 for services Invested in a desktop computer in the future. research are key. It goes without expense later on. David was just six years old and the welder has also seen his family develop to agriculture and for voluntary service saying that what is required will brave decision of his mother to keep a local agricultural buildings business to the agricultural community in Creation of ‘glamping’ sites (glamorous depend on what is being considered the family farm and rent it out to into Morgans of Usk – Wales’s leading Monmouthshire. camping) to meet the ‘‘staycation’’ and the proposed scale. You should tenant farmers, David eventually took manufacturer of steel framed structures, market is an attractive option for many always seek appropriate advice and over Trostrey Court Farm in 1961, aged with projects ranging from schools and but, as with many other trends, we ensure that you obtain appropriate 19. universities to hospitals, supermarkets will in time reach a point of market planning guidance, where necessary. and cinemas. saturation in some areas (in a similar Speak to your bank manager In the half century that followed, David way to farm B&Bs previously). and consider the impact of the transformed the run down farm into a Along the way, David was one of the diversification project on your core cutting edge and diversified business. first steel building fabricators to use The popularity of different business. From