InsightsInsight - Agriculture and Rural - POSTED: December 1 2016
Future-Proofing Your Rural Business
The vote in favour of Brexit will undoubtedly have significant implications for the UK’s rural and agricultural sector. At the current time and for the foreseeable future there is considerable uncertainty as to how this sector will be affected particularly in relation to CAP and the availability of migrant labour.
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In the short term, business goes on as usual. However, businesses in the rural sector along with businesses in all other sectors should consider a strategy to weather the Brexit storm and create a sustainable business for the future.
Many rural businesses have already undertaken some form of diversification, whether it be letting of redundant farm buildings, energy schemes such as solar PV or tourism-based diversification, such as holiday lettings.
For those that haven’t undertaken any diversification and equally for those who have undertaken some diversification, you should consider strategically whether or not there are other forms of diversification that can be undertaken to improve alternative income streams and thus protect the sustainability of your rural business.
A recent Energy Technologies Institute report which studied three farms as they integrated the growth of energy crops, such as Miscanthus and Short Rotation Coppice Willow, into their farming business shows that such diversification opportunities increased the income and productivity of their land, with initial investment costs being recovered in 6 – 7 years. By optimising land use across a farm it is possible to avoid the planting of energy crops directly competing with food production and, in addition, many farmers have indicated that a key motivation behind their decision to plant energy crops is the more productive use of low quality land.
Another recent report by The Green Alliance and The National Trust proposes a new model for “green farming” known as Natural Infrastructure Schemes. This new model envisages groups of farmers working together to sell items such as flood protection and clean water, creating a market for services from farming that currently do not create any or limited income. The Green Alliance and The National Trust will be working alongside landowners and businesses to prepare a pilot National Infrastructure Scheme. At Brachers, we are increasingly seeing our clients considering how their land can be incorporated into Local Development Plans to assist with flood protection.
Along with these newer diversification opportunities, there are other more “traditional” diversification opportunities such as rural tourism and the making and selling of non-agricultural products, for example, the production of ice cream, cheese or artisan products. We have also recently noted a number of our clients seeking planning permission for and converting and letting redundant farm buildings for commercial or residential occupation. If it is your strategy to diversify in this way then there are some key aspects that you need to consider including:
- Do you need planning permission for your diversification?
- What regulations apply to the specific area of diversification, for example, health and safety, fire regulations and food safety regulations?
- How will I fund such diversification?
- If I am a tenant farmer does my tenancy agreement allow me to diversify?
In a time of such uncertainty, it is prudent to keep arrangements as flexible as possible. When entering into legal documents, for example, leases or commercial agreements, you should consider carefully the level of flexibility required so that changes that detrimentally affect your business can be catered for. In the case of a lease, particularly if you are a tenant entering into a lease of additional space, then you would want to consider having flexibility in the terms, for example, shorter lease terms, regular break clauses or the ability to assign or underlet. Of course, as a landlord, you will need to weigh up the advantages and disadvantages of increased flexibility.
When negotiating commercial contracts we would recommend that you consider these carefully to ensure that you have flexibility to terminate the contract if there is a change that is detrimental to your business. Either shorter term contracts or a carefully drafted force majeure clause enabling you to terminate a commercial contract in the event of a materially adverse change could give some comfort where required.
At Brachers we can advise you on a full range of issues arising from any form of diversification, for example, property matters, planning, health and safety, commercial contracts, funding agreements, business structures and employment law issues. If you are considering diversifying and need to consider the legal implications then please do feel free to contact one of the agricultural and rural business team.
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