The survey is peppered with statistics and makes for dry reading. But for those happy to delve into the detail there are some useful insights to be had.
Income from diversification fell sharply to £400m in the year to April 2008, compared with £430m in the year to April 2007, and dropped from 21% of total income to 15%. The fall is not due to less farms being involved in diversification. Indeed there were 29,600 diversified farms in 07/08, compared with 28,700 in 06/07. Rather, the drop is due to a fall in the amount of income generated per farm. In 06/07 the average income per farm was £14,500 compared with £13,700 in 07/08.
The survey figures are not sufficiently robust to draw hard and fast conclusions about the reasons for the drop, but anyone considering diversification might want to think about the following factors, which boil down to the size of the market opportunity, competitive conditions, and costs to operate.
For example, is there now so much competition that diversifiers are having to reduce prices to get business. Or, are the new businesses being established very small because most of the market has been mopped up by existing players. Or, have costs now risen sharply, but competitive conditions mean that prices cannot be put up to offset them, and so margins are squeezed.
Another factor is that the drop in diversified income coincided with a rise in income from core farming excluding subsidies, so it could be be that diversification loses focus once financial circumstances improve. This is in itself dangerous as business once lost will be difficult to recapture.
The survey figures are not sufficiently robust to draw hard and fast conclusions about the reasons for the drop, but anyone considering diversification might want to think about the following factors, which boil down to the size of the market opportunity, competitive conditions, and costs to operate.
For example, is there now so much competition that diversifiers are having to reduce prices to get business. Or, are the new businesses being established very small because most of the market has been mopped up by existing players. Or, have costs now risen sharply, but competitive conditions mean that prices cannot be put up to offset them, and so margins are squeezed.
Another factor is that the drop in diversified income coincided with a rise in income from core farming excluding subsidies, so it could be be that diversification loses focus once financial circumstances improve. This is in itself dangerous as business once lost will be difficult to recapture.
The survey also compares the number of new and discontinued enterprises, and shows that the number of new enterprises exceeded discontinued ones in all areas except food retailing and processing. 3,100 farms started diversification in 07/08, compared with 2,200 discontinuing. The biggest jump was in sport and recreation, and tourist accommodation and catering (although the survey says the sample size for tourism is small, and may not be totally accurate). By contrast, 1,100 food processing and retailing enterprises were discontinued, compared with 800 start ups.
Letting of farm buildings accounts for just over half of all diversification enterprises, and 68% of diversified income, and has the highest profit margin.
Letting buildings gives a margin of 83%, compared with 62% for sport/recreation activity, 58% for tourist enterprises, and 25% for processing/retailing. It is perhaps no wonder that letting of buildings is so attractive given the high margins and low hassle factor.
The average enterprise incomes per farm are as follows:
Letting of buildings = £13,000
Processing/retailing
of farm produce = £9,800
Sport/recreation = £4,700
Tourism = £10,300
These look like healthy returns, but they are average figures which disguise the fact that most diversified enterprises are small. 56% of all enterprises have an output (turnover) of less than £10,000 and 15% have an output of less than £1,000.
Letting buildings gives a margin of 83%, compared with 62% for sport/recreation activity, 58% for tourist enterprises, and 25% for processing/retailing. It is perhaps no wonder that letting of buildings is so attractive given the high margins and low hassle factor.
The average enterprise incomes per farm are as follows:
Letting of buildings = £13,000
Processing/retailing
of farm produce = £9,800
Sport/recreation = £4,700
Tourism = £10,300
These look like healthy returns, but they are average figures which disguise the fact that most diversified enterprises are small. 56% of all enterprises have an output (turnover) of less than £10,000 and 15% have an output of less than £1,000.
It is often thought that small farms are more likely to diversify than larger ones, but the opposite is true, with 66% of the very largest engaged in diversification compared with 42% of the smallest. Less surprising perhaps is the fact that the largest make considerably bigger profits than the smallest, averaging £25,100 per farm versus £10,900 for the smallest.
Reading through the survey results reminds us that diversification requires thorough research about the size and profitability of a market opportunity before proceeding, and constant attention to consumer trends and competitive activities once up and running. It also reminds us that most diversifications are small.
But encouragingly, the survey shows that just 2% of diversified businesses made a loss in 07/08, which indicates that diversification can be a very useful addition to farm income.
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