MORE than half of all family farms have at least one source of diversified income outside of core farming activities.

And it is a trend that seems likely to continue according to Ian Sharpe, partner at accountant Old Mill Rural Services.

He said that having been faced with poor commodity prices over the past decade, many farmers have looked at ways to maximise profitability through exploiting non-core streams of income.

"This is perhaps most evident in the family farm scenario where some family members now earn the bulk of their income from employment away from the farming business," he said.

In a sample of 150 of Old Mill's farming clients, 56 per cent have significant other enterprises outside of traditional farming activity, with the most common being income from property interests.

"Some 37 per cent of farms now have an element of property management, varying from residential lettings to bed and breakfast and office units," said Mr Sharpe.

The next most popular form of alternative income is off-farm contracting, at 11 per cent.

Added value enterprises make up 3 per cent of diversifications, with commercial shooting coming in at 2 per cent.

"In addition, 15 per cent of farms have one of a number of other diversification projects ranging from golf courses to horse livery and farm shops," he added.

Many also have more than one diversification falling into the above categories.

Mr Sharpe said: "But it is important to note that these figures only relate to farm diversification, not to non-farming jobs undertaken by family members.

"Off-farm employment now forms a significant part of modern farming family life."

The impact such diversification has on the bottom line ranges from a few thousand pounds to over a million -in some cases considerably overtaking the core farm activity.

"Some farmers can no longer be considered food producers - they are multi-skilled businessmen and women who have made best use of their resources to not only survive the hard times but thrive and grow their business as each year passes."

Although many commodity prices are returning to profitable levels, Mr Sharpe expects a lot of farmers will continue to diversify.

But it is important that they examine any major business change carefully, not least because of the practicalities of running a new venture alongside the core farming enterprises.

There are also important Capital Gains and Inheritance Tax implications, and advice in these, and other specialist areas, such as planning and employment, is crucial, he adds.

"Careful preparation is essential to put a new business on a sound footing before trading commences, and to reduce the chance of unforeseen problems down the line."

12:10pm Friday 28th March 2008

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