Why entrepreneurial farmers are diversifying to make ends meet
UK farmers are facing extreme pressure on their bottom lines. In an industry where profitability is notoriously difficult, political factors, extreme weather, rising global populations and changing public food demands are forcing farmers to rethink, capitalise on their assets and acquire new skills.
What is the current situation in the UK?
According to market reports 72% of the UK land area is used for agriculture, and whilst the average farmed area has increased in the last five years, the number of agricultural holdings has decreased.
In the region of 20% of UK farmers fail to make positive income, and just over 50% fall into the lower income bracket of <£20,000. In 2018 circa. £2.7 million was paid to UK farmers in the form of the Basic Payment Scheme (BPS), one of the largest of the European Union’s rural grants and payments to help the farming industry. For some farmers BPS represents up to 80% of their current income. The sector is therefore naturally nervous about the continuation of financial support should Brexit be delivered. It is suggested that support will continue to 2022, but as yet there is no clear line of sight on the likely impact a new domestic agriculture policy would have on farm incomes.
What factors are affecting productivity?
With regard to environmental changes, we are all well aware of the weather extremes felt in recent years. Just in the past few weeks we’ve seen yet another example of record temperatures. In an industry where the weather directly affects production processes and productivity, these extremes are magnified and significantly impacts profitability. Last year was unprecedented with a harsh start to the year wiping forage stores out, followed by prolonged hot spells starting from early spring, putting further demand on forage availability to sustain livestock, and presenting difficult harvesting conditions. These trends look set to continue and farming has limited options on how best to mitigate the risk.
Socio-economic factors, including the rapidly increasing global population, the ever-diverging path of public diet preferences and increasingly competitive supermarket prices put even more pressure on the farming industry and farmers bottom line. As a result, it is becoming a greater challenge to sustainably produce food; something that is calling on research and development, technology investment, alternative sources identification and an increase in precision farming, which can price some out of the market.
Should farmers look at diversifying?
With all this in mind there is little wonder why farmers are diversifying in their droves. Reports suggest a figure now well in excess of 50% have diversified, and many more plan to do the same. Common areas include leisure and tourism; from glamping to farm tours and renewable energy via bio digestion to wind turbines. Farmers are looking to take their traditional product and manufacture goods for sale straight to market and have even become unintentional event hosts, making best use of their assets including space, green fields and clean air.
But where does a farm, having changed little in generations, start and who do they look to for support? As with the launch of any new business venture, a lot of thought needs to go into planning and execution. It is imperative that agricultural brokers and underwriters understand and support the industry through positive change, and by doing so both indirectly support the underlying traditional farm market, and venture into emerging markets in this space.
Kate Bush, Head of Business Transformation Geo Agriculture, comments that we have for some time, and are with increasing frequency, seeing both new and existing policyholders diversify their farming businesses:
“The industry is evolving to such an extent that our standard PL covers, once typically traditional, now incorporate some of the more common diversifications. We now routinely have alpacas, wedding barns, butcheries, biomass boilers, farm shops and wind turbines to name but a few on the books, and expect to see much change ahead, particularly post Brexit. We are prepared to work with our Brokers to develop and accommodate as our policyholders demands change”.
The Geo journey has begun.
An exciting future lies ahead as our Towergate businesses move over to Geo. From 1 February 2018, our personal lines business joins Geo Specialty in operating under the Geo brand. The move marks the next step in a programme of change as we transform into an agile MGA structured for long term success in an evolving insurance market.
Our commercial businesses will soon also move over to Geo, completing the operational phase of the transition. But that’s by no means the end of it. We’re on a journey to make a difference. To carriers. To brokers. To the industry as a whole. Geo is the start of that journey.
We look forward to sharing it with you.
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