Farm diversification boosts incomes

Final results from the 2016 Farm Business Survey (FBS) show that 62 per cent of farms operate some form of diversification, and almost a third of total farm business income derives from these enterprises. Income generated totalled £580 million in England in the 2015/16 farming year, a nine per cent rise on the previous year. One estate-owning Lycetts client recently revealed that 95 per cent of his income is now derived outside agriculture.

Whether a new business starting a small scale enterprise or an established brand looking to expand, your investment requires protection and your insurance matters.

Farm diversification comes in many forms, from the more commonplace – the conversion of buildings for commercial or holiday lets and food production businesses – to the more unusual. A few innovative enterprises of note include farmers offering funeral services, manufacturing fire pits, packaging and selling wedding confetti made from home grown flowers, establishing wild running events, and growing crocuses for saffron production.

While each enterprise may require tailoring of an insurance policy to meet specific needs, the main principles remain the same.

Public & Product Liability

Public liability insurance covers the cost of claims made by members of the public for incidents that occur in connection with your business activities. It includes the cost of compensation for personal injuries, loss of or damage to property.

According to the FBS, on-farm processing and the sale of farm produce is the second most profitable diversification activity, as farms seek to generate greater value from the supply chain. Public and product liability insurance is an important cover for anyone involved in the food industry, offering protection where someone is accidentally injured or their property is damaged because of your business.  Incidents which cause food poisoning would be covered.  For some businesses, Product Recall cover should be considered.  As a business grows it is important to look at the level of cover required and the degree of risk involved.

Business Interruption

Business interruption insurance provides protection against loss of income for periods where you cannot do business as normal following an insured loss.

Most new enterprises require significant capital investment, often financed by borrowing. This type of insurance not only protects your revenue stream, but also any financial repayments. For a growing business, cover can be judged by uplift in sales rather than based on a fixed sum, thereby taking into account seasonal and other fluctuations in revenue.

Financial Loss

An extension of a public or products liability policy, in that cover is extended to financial loss caused by a product or action that did not result in any bodily injury, personal injury or physical loss, or destruction or damage to tangible property.

For a farming business this might be failure to supply following an insured loss, or admixture in seeds grown by the business. For food producers it might be contamination. Numerous regulations relating to miscellaneous food additives have recently been enacted, including plastic materials found in products and failures in food labelling in relation to wheat, nut or dairy intolerances. Errors occur and this is where cover steps in.

With the main eventualities covered, a business owner can then look to more specialist policies with regard to individual enterprises. For example:

Renewable energy: This was the second most popular form of farm diversification in 2016 with 23 per cent of businesses generating green energy. Renewables is a specialist area and one in which Lycetts has considerable expertise.

Sporting Activities: Businesses providing sporting activities such as wild running, for example, might require a higher level of public liability protection.

Event organisers: Event cancellation policies are an attractive option.

Tourism enterprises: Existing buildings cover may require tailoring and loss of revenue protection. Furthermore, the more the public come onto farms, the more important risk management becomes.

Conversion projects: Additional contract works cover during the conversion process should be considered. It is important to let your broker know what the new use will be, particularly if let for non-farming purposes.

In summary, keep us informed. The more we know about your business and any farm diversification, the better the recommendations and resulting cover will be.