Farm Diversification

Estimates suggest that almost 50% of farm businesses have diversified. For some enterprises the market is already well developed, and in some cases saturated, meaning careful research and planning is required to minimise the risk of failure.  Understanding the market, and knowing what benefits your project will bring to you and the local economy are particularly important if you aim to apply for financial assistance through the Scottish Government's Rural Priorities as you must ensure your project ties in with the objectives and priorities set for your area (find which Regional Proposal Assessment Committee boundary you fall under).

The planning process can be broken down into six stages:

• Formulation of the idea
• Feasibility study and financial appraisal
• Application for planning permission if required
• Final project design, investment and development
• Business start-up
• Business consolidation. It is essential not to jeopardise the existing business.

MARKET
Market opportunities will depend on the projects to be considered. The following five elements must be thoroughly researched.

• The Product
• The Place (location where customers will buy which may or may not be the farm)
• The Position (which part of the market and at what level will you supply)
• The Price
• The Service provided

Much can be done through gathering published or other information sources, but often the most valuable information is obtained direct from potential customers.

PHYSICAL REQUIREMENTS
It is helpful to review all of the resources of the farm to determine what opportunities may exist, as well as gaps there may be in the market. Each enterprise will have different requirements and the impact of these on the core farm business must be assessed.

CAPITAL/RUNNING COSTS
Costing information is general and current prices should be sought for budgeting purposes. The capital and operating costs will vary with each individual enterprise. This information is general and current prices should be sought for budgeting purposes as the costs of some diversified enterprises fluctuate greatly.

RETURNS
As success is dependent on an often fickle market, expected returns should be thoroughly researched as there are many risks involved in setting up a diversified enterprise.  In order to assess returns fully a Feasibility Study is normally required.

This should thoroughly cover:

• The Market Research and Strategy
• Capital Costs
• Anticipated income and Cash-flow detailed for one year at least and annual for two or three years
• Labour requirements, skills, availability
• Effect on current business activity in physical and financial terms
• Assessment of Legislation that must be complied with.

As with the above the information on possible returns in the database sheets is general and current prices should be sought for budgeting purposes.

CONSTRAINTS
Planning permission in full or for Change of Use is normally required. There are also many regulations which apply that are different from those normal in farming. Additional constraints often include capital availability and management skill and time.

Frequently, the time demanded to set-up a new business is underestimated.

TRAINING
Many new skills are required to run non-farm enterprises. Professional training should be sought at the time the skills are needed. Good training is a sound investment and should be budgeted for.

GRANTS
The Scottish Government introduced a new suite of competitive funding opportunities for farmers, rural businesses and rural communities in April 2008 through the Scottish Rural Development Programme 2007-2013.  This suite of funding opportunities is called Rural Development Contracts - Rural Priorities and included is assistance for:

• Restructuring Agricultural Businesses (including alternative crops and livestock)
• Short Rotation Coppice Crops of Willow or Poplar
• Renewable Energy - Agriculture
• Renewable Energy - Forestry
• Processing and Marketing of Primary Products
• Diversification Outwith Agriculture
• Support for Renewable Energy - Non Land-Based
• Development/Creation of Micro-Enterprises

As the Rural Development Contracts - Rural Priorities support is competitive and requires your project to help deliver regional (and national) priorities it is recommended that you: (a) study the priorities set for your region, and; (b) seek guidance from your local consultant or from the Scottish Government, Rural Payments & Inspections Directorate.

PUBLICATIONS
There are a number of books on the subject, including guidance produced by the Government.

Also, general books on small business management and marketing are extremely useful.