Is Diversification For You?

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William Waterfield (Andover)

Reading my colleagues Gerard’s article on “Where is the milk going to come from”, made me think back to when I started as a consultant and the common themes that the successful businesses have had over the 35+ intervening years.  Those themes include all the usual suspects and in no order they develop good teams, are well planned, manage the finances, have a clear vision.  In many cases one thing has stood out over the years and that is in most cases the successful business has simplified and become focused around a few activities, arable farms got rid of the sheep or beef enterprises, mixed farms specialised, dairy farms got bigger.

Is this strategy still, correct?  Over the last 35 years I’ve often said to clients when they asked about diversification that “Those who need to diversify should not and those that should, don’t need too” because those with resources to diversify were already making decent returns and did not need the risk and distractions that new enterprises bring, whilst those that needed the extra income had not got the resources to manage the complexity that diversification entails.

It’s now widely accepted that diversity can bring benefits to a business as it does to other systems it also adds complexity.  Until recently farming businesses were used to receiving a lump sum hand out depending on the farmed area.  Whilst the BPS is not completely finished the days are clearly numbered and in its place payments for environmental measures.  At the very least to receive these payments farms are going to have to do something differently, diversify their activities.

Some business will persist with limited engagement with the SFI and take the easy money others will adopt a more diversified approach and hope that the net income goes a long way to offsetting the loss of BPS.  A few may adopt measures that open completely new enterprises or income streams.   However, with the short-term nature of the SFI, three years, lest we forget we all knew that BPS could never survive for ever, and that SFI income may not be there for long and if that happens what’s your business going to be like.

Will you persist with monocultures and the simple business strategy arguing it’s the way we have done it, and it’s worked in the past and we can compete as commodity producers, with all the up and downs involved?  Or does your business have the resources, finances and vision etc., to meet the challenges of the next 5 years, let alone the next 30 years and diversify itself?

Contact Willaim at w.waterfield@fcgagric.com or your local FCG Office, to discuss your business diversity.

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