Farm diversification: Possibilities; planning; pitfalls; and potential

Planning, training, taxation advice and a good solicitor are essential starting blocks to embarking on a farm diversification project, according to Teagasc’s Barry Caslin.

Speaking on the latest episode of FarmLand, the energy and rural development specialist outlined that, with the right guidance, farm diversification can not only boost incomes and certainty, it can also lead to more sustainable rural areas and improve the country’s carbon footprint.

His comments come following this week’s publication of the cross-party Climate Action Committee Report which recommends that a key aspect of successful agricultural mitigation efforts over the next decade will be land-use diversification.

Caslin, who is based at Teagasc in Longford town, said that many farms are trying to diversify at the moment in a bid to insulate their own core enterprise – be it in beef, sheep, dairy, tillage etc.

“They are diversifying away and looking at alternative options on the farm to add to cash flow and profitability and to reduce the volatility on farm. There is a lot of uncertainty.

“But farmers have to be really careful because a new skill set is required before you decide to enter into a diversification project.

Caslin pointed out that firstly it’s about: identifying what’s in your area; identifying local requirements, local needs; and doing market research.

For a diary farmer producing milk, they may decide I’ll produce ice-cream on the farm or maybe I’ll produce cheese.

“A new form of diversification is renewable energy where farmers are able to sell energy to the grid. They can sell heat and fuel produced locally through bio-methane.

“There are loads of examples of this happening right across Europe, I think there is great potential for farming to develop,” he said.

Caslin encourages farmers to think outside the box when it comes to sweating the assets already on their holdings, as he says, “rural areas are crying out for development options”.

“The traditional sources of income are not really delivering – even though they are being heavily subsidised for the last number of years.

They are not delivering the amount of income that keeps people sustainable within rural areas.

When it comes to training, Caslin points out there there are a lots of training boards currently being run by the like of local training board education offices.

Long-term planning

Long-term planning is vital, according to the advisor.

“Anyone considering a new business needs to look at planning. Is there going to be a change of use of building for example? Are you going to use your buildings for a different use?

On taxation, he says farmers need to know if agri relief will be available to them if they move into a new enterprise.

“All of a sudden you are in a tourism enterprise rather than an agricultural enterprise, so will agricultural relief be available for you to pass that asset to a son or daughter afterwards?

“You have to consider other things like staff. Will you require extra staff? This can be a daunting thing for a farmer to take on, contractual requirements, changes of a contract with an employee. It’s verry important on the taxation side to get a good accountant involved in the project.

It’s very important to get a good solicitor involved as well to look at the whole legal agreement in terms of taking on staff.

“Even the legal entity of the business, will it be a legal company, a partnership or will they act as a sole trader?

“Very often these projects are partnerships and it requires farmers coming together because you really have to want to do this,” he said.

Caslin also stresses the importance of ensuring the new business can operate in tandem with the core enterprise.

It’s important that you don’t drain the core enterprise of all its resources because a lot of time and money will be required in terms of developing this new business. You don’t want to drain the core enterprise of this as well.

You have to look at budgets to ensure that if you are developing a new business like that, that you have enough money to bring it to fruition.

“Some people over estimate the project at the very start, they think they can get a lot bigger a lot quicker. Then they realise that they have to shrink their plans very quickly – but then build it up over time afterwards,” he said.