Business and Policy June 2025 – Sector Focus: Diversification

Diversification continues to strengthen farm business profitability 

The Scottish Government has recently published the Scottish Farm Business Income: Annual Estimates for 2023-2024 which gives valuable insights into the profitability of Scottish agriculture,  and the important role that diversification can play with regards farm and croft profitability. 

Farm incomes declined in 2023-24, after record highs in the previous year.  This downturn is attributed to three main factors:  

• Firstly, Price – following price highs in 2022-23, some agricultural output like cereals and milk experienced a large price drop.  

• Secondly – Lower Output – due to adverse weather.    

• Thirdly – Costs of Production – while some input costs showed a modest decrease, production costs did not fall at the same pace as output prices, putting additional pressure on profit margins.  

Average farm business income, a measure of farm profit after costs, fell for all farm types in 2023-24. Cereal farm income fell on average, by 63% to £38,900.  Average income for General Cropping farms fell by 54% to £83,300.  Falls in outputs by both farm types were driven by cereal prices dropping to pre-2022 levels, and reduced yields.  

Average Dairy farm income was estimated at £116,300, a drop of 56% due to milk prices dropping from exceptionally high prices seen in 2022-23. Although dairy incomes remain above the ten-year average.  

Lowland Cattle and Sheep farm income fell by 87% to £2,600. This is the largest drop in income across livestock farm types, largely driven by falls in livestock output. The average income of Less Favoured Area (LFA) livestock farms decreased by 32% to £17,400.   

In terms of profitability, in 2023-24, 31% of cereal and dairy farms were loss-making, up from 2% and 4% respectively in the previous year. While the proportion of unprofitable lowland cattle and sheep farms increased from 20% to 68%.  

As shown in Figure 1, fewer farms made any profit without including support payments in 2023-24.  For LFA sheep farms, no farms in the survey made a profit without support payments, down from 8% of farms in the previous year. 

Figure 1 – Scottish farm business income: annual estimates 2023-2024 

Diversification has a key role in supporting farm incomes 

In 2023-24, 59% of farms surveyed had at least one diversified activity with the average income increasing to around £12,200.  This is an increase of 18% compared to the previous year.  The most common enterprises continue to be renting out farm buildings, micro electricity generation, wind turbines, tourist accommodation and catering. 

It can be seen from Figure 2 below that despite the higher income from diversified activities in 2023-24, the income gap between farms with and without diversified activities narrowed to £17,100.  

Figure 2 – Average farm income, farms with and without diversified activities, 2019-20 to 202324. 2023-24 prices 

Compared to the previous year, losses in income by farms with diversified activities were higher than income losses by farms without diversified activities. Adverse weather, higher energy costs, foreign holidays being favoured over staycations and labour cost and availability have all contributed to higher costs for diversified businesses. 

What are the current trends in farm diversification? 

1. On-farm Weddings continue to be very lucrative and can generate high returns on investment. The market is competitive and can require significant investment to convert/upgrade traditional farm buildings, and venues generally work best when they are totally detached from the main agricultural operations due to noise and visual impact.  

Micro-weddings are also favourable for cost-conscious couples who want a small intimate wedding with beautiful scenery and tranquillity in the countryside. Micro weddings can be a good source of income for farmers capitalising on their location and views without significant investment or overheads.    

1. Dog parks can provide a good source of income utilising small acreages, or land which could be considered marginal land less suited to arable cropping.  

Dog parks are popular among dog walkers and owners alike and can generate around £8-10 per half-hour. Dog parks are most successful if located within close proximity to towns, villages, and areas with high populations.  

1. Accommodation – Despite the ongoing cost of living pressures on households; people still want high quality, authentic, and memorable experiences.  

In the self-catering accommodation market, we

are seeing a shift away from glamping towards lodges/chalets. In 2024, according to the Scottish Accommodation Occupancy Survey report 2024,   unit occupancy rates for glamping were around 23% compared to lodges/chalets performing around 59%,  

1. Farm Vending/Retail – consumer demand for quality farm produce with strong provenance remains high.  

Farm vending is popular among farmers looking to direct market their own produce, keep profits at the farm gate, and add value to their own produce.  

Retail spaces can be stocked 24/7 and do not require the same labour input as more traditional farm shop/café enterprises. Dairy farms can achieve around £1.60 per litre of milk selling direct to consumers through a vending machine.  

Location is key to success by achieving high customer footfall and sales. Farms looking to introduce new products with added value can also benefit from Standard Innovation Vouchers   | Interface Online funding which can provide specialist culinary and new product development expertise to help create innovative products with added value.  

1. Health and Wellbeing – A McKinsey report, published January 2024, found that 73% of UK consumers consider wellness a top or important priority in their everyday lives.  

Farms, crofts, and estates are ideally placed to capitalise on their natural assets to fulfil customer demand in the health and wellbeing market by offering wild swimming, walk and talk therapy, on-farm gyms & exercise classes, forest bathing, outdoor saunas and ice baths. 

 

A key aspect to the success and profitability of a diversified enterprise is marketing, and in this digital age, it is important to use more than one social media platform to promote what you have to offer and to learn how to stand out from the competition. Be bold not bashful! 

   calum.johnston@sac.co.uk 

07917 263 256