Continued uncertainty over the details of the UK subsidy regime that will replace the Common Agricultural Policy (CAP) are increasing concerns that farms will incur further financial impact from Brexit and must therefore look to diversify operations. Every rural business idea comes with risk, but doing nothing could prove to be even more damaging. Within this current climate, it’s especially important for farmers and estate owners to challenge the status quo.

Many people leading such businesses have a fantastic creative capacity to arrive at new and innovative ideas or strategies, but this doesn’t necessarily result in implementation. One of the core reasons for this is that proper planning isn’t undertaken at the outset. At this stage in the diversification strategy process, it’s essential to consult with professional advisers, suppliers, statutory authorities and other key groups to create the right team.

Experienced advisers are essential as there are a range of legal and tax-focused complexities that will often drive important decisions around diversification projects and help determine their viability. The tax system, for example, provides very important protections for farms and farm business from inheritance tax but, if not suitably structured, these may not apply on some diversification projects such as a renewable energy development. Likewise, developing a self-catering operation as part of a rural business could lead to longer term tax issues if not carefully planned.

Andy Drane is a Partner at Davidson Chalmers Stewart LLP

It's important for farmers and estate owners to develop an understanding of their aspirations and how a diversification project could potentially support this. With many farms and estates being passed down from one generation to the next or even skipping generations, one of the key aspects for wider consideration is succession planning.

Other key considerations around diversifying include the level of resources available to invest in a project and, if it should be required, how external finance can be accessed to support such plans.

Location is also critical. Developing a farm shop or rural restaurant as part of a diversification strategy may not be the right course of action in extremely remote or inaccessible areas, while the viability of a renewable energy project will be largely determined by topographical features of land as well as considerations around access such as to flowing water for hydroelectric installations and who the end-user of the power generated may be. Creating energy which you or a neighbouring business can use is increasingly attractive.

Market research is also essential in identifying acustomer base and how it can be accessed. While copying an idea from a neighbouring farmer may be tempting, is it the right thing for you? Is the market even there to support you both?

Rural businesses that require both short and long-term workers must also factor in the accessibility to labour. This is typically a bigger challenge in more remote regions and in areas which are popular with tourists which often lack worker accommodation availability.

Access to infrastructure, from broadband to more standard services including electricity and gas is a further important consideration when planning a diversification project. Grid capacity is also key as this is essential for the viability of renewable energy developments.

A diversification strategy should also consider the regulatory regime that will govern a particular rural business. Food production, for example, will be regulated by Food Standards Scotland, while a leisure-related offering will fall under the Health & Safety Executive’s authority. It’s important to be aware of the compliance responsibilities that are monitored by these organisations.

Assessing the level of public sector support is another important factor that could influence diversification projects. Highlands and Islands Enterprise and VisitScotland support for the North Coast 500 was a prime example of how public sector intervention and collaboration created a viable platform for many rural businesses to invest in hospitality projects.

With the Scottish agricultural sector facing an uncertain future, a diversification strategy is becoming increasingly important for farmers and estate owners. It’s also essential that they plan this carefully with the support of professionals who can help identify the best opportunities and avoid the worst pitfalls.

Andy Drane is a Partner at Davidson Chalmers Stewart LLP

Diversification is key as rural businesses face uncertain future - Andy Drane