As a farmer, you derive an income from using land. As a landowner, you derive an income from owning land which has the ability to provide an income from its use. If you are fortunate enough to be an owner occupier, you will have the benefit of deriving an income in both respects.
This may seem a strange statement, but it is worth some consideration. It highlights the two different types of income, firstly from working the land, or running a business using the land and secondly, the income from owning the land, which we will call passive income. Passive income is earnings derived without being actively involved.
As an owner occupier, it is critical that these two forms of income are considered within your farming business. Are you maximising both forms of income? If a theoretical rent is applied to the land, i.e. putting yourself in a tenanted position, are you still making enough profit to show that you are in a better position than if you rented the farm out?
Taking this a step further, can the desire to achieve an income from using the land to farm, as well as from owning the land, present any additional diversification opportunities that you may not have thought about?
Farm diversification is essentially the diversifying of income streams so that as a business, you are not solely dependent on the sale of a commodity. When looking at diversification projects, they need to a) be a business that can run on its own and not distract from the core agricultural operations; or b) be something that is a genuine passion and therefore any distraction from your farming operation is a conscious decision; or c) seek to enhance passive income from assets that the farm already has but is either under-utilising, or not using at all. In my mind, the latter is the ultimate form of diversification as it seeks to maximise income out of potentially low yielding agricultural assets by turning them into either commercial or residential income streams. Money generated from those diversification projects flows into the business month after month whilst still allowing you as farmers to continue running profitable businesses.
If you would like any assistance in looking at the opportunities you may have as a farmer and / or landowner to see things from a different perspective, we are more than happy to come out for a no-obligation discussion about where we see your farm’s potential opportunities.