Fluctuating prices and changes to subsidies and environmental rules all mean there is uncertainty about future income, but adding a second business can spread the risk and, if successful, allows multiple income streams.
Alternative uses can also help landowners tap into more stable markets such as leisure and tourism.
Robert Taylor, who is Galbraith’s partner in charge of Agricultural Mortgage Corporation finance which provides landowners with long-term lending to buy or diversify, says: “Lenders are nervous of new ventures but if there is an existing farm business, even if it is just treading water, that is an advantage in attracting funding.”
Location is hugely important and Taylor says banks are very well aware of what will work.
“Having a rural location will be beneficial for a tourist-based business such as glamping or use as a wedding venue, however urban fringe farms can offer the opposite, buildings can be converted to a commercial use – farm shops, general storage, lock ups and caravan parks.”
Strategies have to be long term but banks will lend over up to 30 years as it can take five or ten years to build up a reputation and trade.
For those looking to sell, putting in place the potential for diversification such as a campsite, a coffee shop or holiday accommodation beforehand can be beneficial.
Taylor says: “Even if you aren’t going to pursue the new business yourself, investing £5,000 or £10,000 in gaining planning permission will increase the saleability and offers different angles to potential buyers or the opportunity to split assets for sale.”
The direction of diversification depends very much on the property.
Taylor says: “Planners are always supportive of bringing redundant former agricultural buildings back into use.
“A lot of residential amenity farms, who might not have too many modern facilities, are actually at an advantage if their buildings are traditional.
“If you have a traditional farm, do you gear up and invest to go down the intensive farming route or do you stay semi-traditional but plug your farm into a different marketplace by diversification?”
He believes that all decisions need to be made with Brexit in mind.
“In the coming years some upland hill farmers may suffer from a drop in support, whereas it is likely that the lowland intensive farms probably won’t, because they don’t rely so heavily on subsidies.
“But the hill farmers are the ones who, in terms of tourism, are in the so-called honeypot destinations.
“With no question tourism is a stable industry, which can often complement carrying on with traditional farming on a small scale.”
Overton Farm near Kilmaurs in Ayrshire, which is being marketed by Galbraith priced at offers over £575,000, is a good example of a business which has already diversified but offers further potential.
Built in 1805, the farmhouse has four bedrooms. One of its farm buildings has been developed into a coffee shop and the property includes a well-established garden centre.
Additional buildings which could be developed include a workshop, office, games room, stores, timber-framed sheds, three commercial poly tunnels, a cottage, three stables, a hatching shed and hen house.