For those making their living from the land, having their finances add up has been a long standing issue. Although farmland has been achieving good prices of late, selling the key asset is not something to do lightly and it is often a more complicated – and emotional – equation than pure arithmetic.
Diversification has long been the way to tap into more lucrative and stable sources of income. Many modern farmers and landowners in Britain find it necessary to augment income streams from traditional methods.
According to government figures, 62 per cent of UK farmers are having to diversify alongside running a traditional working farm or estate.
The UK’s dairy industry is perhaps most affected, with the falling price of milk forcing as many as half of dairy farmers out of business in the last ten years.
Livestock farmers have also had to contend with disease and food producers have faced increased overseas competition, while changes in legislation and political uncertainty surrounding the future of subsidies have affected all sectors of land use.
Kenny Munn, director of Savills says, however: “You could say owners of farms or estates in Scotland are better placed to deal with uncertainty because in the last few years they have had to deal with two rounds of land reform, half a dozen of major changes in legislation, plus Brexit and the independence vote so it is actually the norm now in farms and estates.
“Owners are used to being light on their feet, adaptable and well able to rethink strategies to tap into more stable and lucrative markets.”
The range of second income streams is vast, with some farms and estates opting to offer courses in traditional agricultural skills, such as cheese-making or sheepdog trials.
Michael Gove, the UK environment secretary, has indicated that in future support is likely to be tied to environmental concerns or the common good, and landowners are well placed to consider schemes in both areas.
Holiday accommodation – whether in glamping pods, boutique B&B or self catering in a converted farm building – can work well in tourist areas.
Food producers are branching out from traditional crops into wildflower seed production and essential oil crops.
Forestry has long been a lucrative crop while cashmere goats, alpacas, llamas and ostriches are the new livestock for many farmers.
Those who still keep conventional farm animals, such as dairy farmers, can add value with developing in-house products such as ice-cream and cheese.
Oscar Yerburgh inherited the 5,000 acre Barwhillanty Estate, near Castle Douglas, five years ago. He says: “My father, John, had the vision to plant a considerable amount of trees so 60 per cent of the land is forestry, managed from a commercial basis and for field sports as well.”
Yerburgh’s father was a pioneer of commercial forestry in south-west Scotland and chairman of the Forestry Commission’s regional advisory committee.
But Yerburgh says: “An estate is not just about having one income stream, you really do need as many strings to your bow as possible.”
He and his wife Maria commissioned a complete review of how the estate operated, just after they took over, to devise new strategies.
Yerburgh says: “First we heavily invested in our estate properties. We have spent a lot on energy efficiency to attract tenants who will stay longer in affordable housing.
“We brought tenanted farms back in hand because we wanted to expand the farming business. The houses that were left over from that we have developed into holiday accommodation.”
However, either end of the high season the holiday business is quiet.
Maria is a dentist but retrained as a yoga instructor and nutritionist and they have just launched “Raw and Wild” breaks which take the elements of healthy eating, foraging and yoga using the holiday accommodation for small groups.
Plans for the future include developing off-grid accommodation and diversifying a sheep herd by introducing deer farming.
Robert Taylor is Galbraith’s partner in charge of Agricultural Mortgage Corporation (AMC) finance which provides funding for both buying land and diversifying.
He says: “Lenders are looking for a stable income stream so there are advantages in diversification.
“If there is an existing farm business, even if it is just treading water, the ability to offer collateral in land is important. Banks will support diversification where it will complement the farm business.” He says where rural farms often have a good location for tourism and accommodation, urban fringe farms might have advantages of offering commercial units, storage, caravan parks and lock-ups if they change the use of the buildings.
“Banks can be nervous of new ventures if there isn’t traction with an existing business.”
However he says that lenders, such as AMC, will support a project long-term. “No-one expects a good turnover in the first year of glamping pods, chalets or such like, but lending can be over 30 years.”
For those thinking of adding value to the land in the years before selling it may be a good idea to investigate planning to increase saleability.
Taylor says: “Anything they can do to improve that would be a good thing, it might mean investing £5,000 or £10,000 to gain planning permission and that would also give opportunities for splitting the property further down the line. Selling off parts to different operators, with the farm going one way and the diversification going another can be lucrative.
Munn says: “Location is always important but the enterprise of the owner is key to success.
“We are frequently asked how to diversify and while I can supply numerous examples of diversifications that have worked, the most important factor is having the wherewithal to think laterally about how to use a redundant asset in a different way.
“It is the entrepreneurial skill of the landowning family – quite often a wife, son, daughter or someone marrying into the family that brings the skills to find the opportunities.
“Equally the best ideas might come from the gamekeeper, cook, tractor men or farm managers, but it is important to use the brain power that is there on the farm or estate already.”
This article appears in the SUMMER 2018 edition of Vision Scotland. A digital version can be found here.