Your farm, your finances and your future

A farm is far more than just a business. Farming is a lifestyle, a commitment, and almost always, a family endeavour. Though the face of British agriculture is changing, with new technologies, environmental concerns, and market challenges, this remains the same.

We were interested to hear how these recent changes are impacting the people behind the industry and their finances. So, we interviewed 100 farmers in the UK to find out more about their revenue, financial concerns, retirement plans, and succession strategies.

We’ll share their responses here, alongside comments from Investec Wealth & Investment (UK)’s Scott Jones, Divisional Director of the Southern Offices, who shares his insights into the challenges being faced by rural clients.
 

Frequently your farm is inseparable from your personal finances

A clear theme that shone through in interviews is that your farm is not just your livelihood but often your savings, your retirement plan, and your legacy. Nearly nine in ten (86%) of those surveyed say that more than half of their wealth is tied up in their farm.

 “Given that many farmers have dedicated their entire lives to building their agricultural enterprises, it’s unsurprising that they have the majority of their wealth tied up in their farms,” comments Scott, “However, this does highlight the need for effective financial planning.”
 

Most farms are in good financial health but face rising costs

Fortunately, our survey found that seven in ten farmers describe the financial health of their farm as ‘good’ while a further one in ten describes it as ‘excellent’.

This isn’t to say there aren’t financial challenges. Most of the people we spoke to say their farm has some level of debt, with 40% describing that level as ‘moderate’, and 33% describing it as ‘high’ or ‘very high’.

Two-thirds of farmers also say their costs have risen over the last two years, with an average rise of almost 13%. This, of course, adds pressure to increase the farm’s income.
 

Current market dynamics are igniting farmers’ entrepreneurial spirit

We’re pleased to report that over half of farmers tell us their income has increased over the last two years, while only one in ten say it has fallen. In many cases, this increase is the result of introducing new revenue streams.

Every UK farmer we spoke to told us that they are using at least some of their land for non-traditional purposes, though these purposes vary. “There doesn’t appear to be a one-size-fits-all approach to diversification,” says Scott. “Farmers are showing their entrepreneurial spirit and trying out a whole host of new ways to use their land, from carbon capture to glamping.”

We found that 43% of farmers are making and selling products, such as cheese, 38% are involved in community-supported agriculture, i.e. produce subscriptions, and 35% are attending farmers’ markets.

Another 35% are offering cottages or land as holiday rentals. If you’re interested in generating income this way, the following video discusses the opportunities and challenges of managing and marketing rural properties.
 

“Whichever route farmers and landowners decide to take, we can help to navigate this journey,” comments Scott. For example, we can help clients decide how to finance projects like these, either by releasing capital from an existing portfolio or by borrowing against their assets.
 

Farmers are harnessing the opportunities of the green energy revolution

Interestingly, we found that the most popular non-traditional use of land is for biodiversity activities such as carbon capture and tree planting, with two-thirds of farmers involved to some extent.

A large proportion of farmers (seven in ten) are also investing in renewable energy production, such as biomass energy, wind, solar, or hydropower. Green initiatives like these have a logical fit with farming, which has at its heart the management of land and natural resources.

Furthermore, these activities are proving to be financially rewarding. Of the farmers involved in increasing biodiversity, two-thirds (68%) say that it makes up between 15% and 20% of their farm’s annual income. Of those using land for renewable energy purposes, three-quarters (77%) say it contributes between 10% and 15% of their farm’s annual income.

Scott shares, “These projects offer farmers a way to future-proof their operations against the impacts of climate change and volatile energy markets. Plus, they allow farmers to create other income streams, including the sale of carbon credits to third parties, enhancing the resilience and long-term viability of their businesses.”
 

As with any other career, most farmers will eventually retire. 95% of those we surveyed say that the current generation running the farm plan to retire by the age of 70, with the majority stepping back between the ages of 60 and 65.

Unlike some other careers that offer generous pensions, 96% of farmers see their farm as their pension.

That’s to be expected, says Scott: “With fluctuating commodity prices and extreme weather events impacting their income, some farmers may, understandably, prioritise reinvesting profits back into the farm rather than setting aside funds for retirement.”

Around half of all farmers (48%) expect the farm to provide more than 50% of their retirement income, while around half again (51%) expect it to provide between 25% and 50% of their retirement income.

“This reliance on their farm underlines the importance of effective financial planning and succession strategies to ensure a smooth transition and a comfortable lifestyle when you retire,” Scott concludes.
 

A smooth succession benefits the farm, the family and further afield

“Farming is not just a source of income but often a deeply ingrained family legacy that will be passed down,” notes Scott. That is reflected in our survey results, with a huge majority (92%) saying that their farm will be overtaken by the next generation of their family once the current generation steps back.

He continues, “By establishing succession plans, farmers can seamlessly transfer management responsibilities to their family members, helping to preserve the knowledge and expertise that was cultivated over years of hard work.”

Succession planning involves careful consideration of factors such as the financial stability of the farm, the skills and aspirations of family members and the potential tax implications of the transfer in ownership.

Of the farmers we surveyed, 88% say they already have a robust plan in place for the future of their farm, meaning more than one in ten does not have this contingency in place. That’s concerning, says Scott: “Robust succession planning can bring stability not just for the family but also for the local community and the wider agricultural sector, ensuring support for rural economies and the long-term viability of food supply chains.”