Diversification now 'essential' for farm incomes after BPS loss

Farmers are being urged to plan carefully before diversifying as farm businesses face growing financial pressure following the loss of the Basic Payment Scheme (BPS).

Philip Whitcomb, a lawyer specialising in agricultural clients at law firm Clarke Willmott LLP, said diversification is becoming essential for many farm businesses seeking to replace lost subsidy income.

“For many farming businesses, diversification is essential to replace lost BPS income,” he said.

“However, diversification must be properly planned because it affects cashflow, succession, taxation and the long-term resilience of the farm.”

He stressed that seeking professional advice early in the process can help farmers avoid costly mistakes.

“Getting the right professional advice at an early stage is critical,” Mr Whitcomb added.

Diversification projects can include ventures such as holiday accommodation, farm shops, renewable energy schemes or rural workspace developments.

Whitcomb said farmers should begin by identifying which farm assets could be used for diversification and how the project fits into the long-term strategy of the business.

They should also investigate whether planning permission is required and whether any local restrictions could affect the proposal.

A detailed financial assessment is essential to ensure the venture is commercially viable, while farmers must also consider how the new activity will interact with the wider farm operation.

Securing appropriate funding is another key factor. This may include grants, private investment or borrowing, depending on the scale of the project.

Specialists also warn that diversification can affect business rates and property valuations, potentially changing the financial outlook of the enterprise.

Management arrangements should also be clearly defined. In some cases the venture may be run by family members, while in others external partners or new employees may be required.

Whitcomb also highlighted the importance of aligning diversification plans with long-term succession planning.

“Diversification can strengthen a farming business significantly,” he said.

“But without careful legal and financial planning it can also introduce unintended risks.”

He urged farmers to consider the wider legal and governance implications when setting up new ventures.

“Farmers should take a holistic view considering tax, succession, asset protection and governance alongside commercial viability,” Mr Whitcomb said.

He also advised reviewing insurance cover and assessing exposure to risks such as death, bankruptcy or divorce when establishing new business structures.

Advisers say careful planning and professional guidance will be essential if diversification is to successfully replace lost subsidy income and strengthen the long-term resilience of farming businesses.