Weathering the perfect storm

Rural businesses displayed dynamism, flexibility and enterprise in the face of the Covid-19 pandemic, successive lockdowns and volatile weather patterns

Last year was without a doubt the greatest test for many rural businesses seen in a generation. Adverse weather created some of the most challenging farming conditions, while Covid-19 and the ensuing lockdown took a toll on a vast swathe of enterprises. This all happened against a backdrop of trade disruption, labour shortages and policy change in the rural sector. Farm diversification is a key strategy to reduce rural business risk and to maximise farm income returns, but even diversified businesses encountered significant adversity and hardship.

Yet despite forecasts of a perfect storm, many enterprises appeared to have weathered the worst through a combination of adaptability, determination and creativity. We have seen rural businesses dramatically modify their offering to cater to consumer attitudes and demands. This has not just mitigated the impact of the pandemic on pre-existing diversifications, but also on falls in core farming income streams.

This Spotlight focuses on the enduring trends emerging in rural diversification for 2022 and beyond, and provides a strategic guide on how rural businesses should approach diversification through a detailed case study on the Savills Virtual Estate. It also reviews our Rural Vibrancy Index (RVI), which tracks some of the key trends influencing rural businesses and diversification strategy to give a comparative indication of the strength of the sector over time.

What is the Rural Vibrancy Index?

The Savills RVI tracks some of the key influences on farm diversification and aims to give a comparative indication of the strength of the sector over time. The index combines a wide range of indicators in three separate categories: farm business drivers, economic indicators and enterprise performance results. The vibrancy of the sector is represented as standardised values indexed relative to the year 2011 (2011=100).

Rural Vibrancy Index

The Savills RVI performed poorly in 2020, reflecting the disruption the UK economy experienced as a result of the Covid-19 pandemic, with a contraction in GDP and restrictions on overseas visitors to the UK. However, there were notable bright spots, from an increase in the demand for and creation of holiday accommodation to the dramatic rise in pet ownership, making the outlook for 2021 and beyond much brighter.

Economic base

The 7.5% decline in the RVI’s economic base index between 2019 and 2020 will come as no surprise and leaves the index at its lowest point since its base year of 2011. The decline is predominantly attributable to declines in stock indices, as well as economic indicators such as GDP. Exchange rates proved remarkably stable as central banks in developed economies have moved in strict parallel since the start of the pandemic leading to few divergences between currencies.

Farm drivers

The farm drivers index continues to prove volatile; this was the case even prior to an 11.4% decline between 2019 and 2020. Cereals and industrial crops were hampered by highly adverse weather conditions. A wet winter led to some farmers abandoning planting until spring when excessively dry weather caused further problems. The harvest began well, but was then compromised by wet weather in August. Taking wheat as an example, a relatively small price rise in 2020 could not compensate for the smallest harvest since 1981. The outlook for 2021 is much better, with record grain prices and near-perfect autumn drilling conditions making up for the late harvest.

Diversified enterprises

A 1.6% increase in the diversified enterprises index is one of the poorer years since the index’s base year of 2011 and is below the five-year average. Nonetheless, it is the strongest of the three indexes reported within the RVI between 2019 and 2020. The annual nature of the RVI disguises a volatile monthly, or even weekly, picture for diversified enterprises. Ever-changing lockdown restrictions resulted in difficult periods followed by bounce-backs for many rural businesses. Yet innovative and flexible approaches to diversification smoothed out some of those peaks and troughs, creating revenue streams during adverse times and maximising the opportunities presented by relaxed restrictions.

Certain individual elements of this increase reflected the shift to staycations and an interest in food. The number of accommodation and food businesses increased between 2019 and 2020, and according to the Office of National Statistics, the number of these businesses is expected to rise during 2021.

Rural business operators have been quick to respond, adopting a proactive approach to lockdown restrictions and keeping customers safe. Relaxed planning restrictions on campsites, combined with foreign travel restrictions and a boom in demand for genuine experiences provided opportunities for the accommodation market. Increased demand for local food deliveries, enabling the avoidance of crowded supermarkets while supporting high quality, sustainable and local food, also saw the number of food service offerings boom.

The adaptive and forward-thinking approach from rural businesses is a significant contributor to the upward trend of the diversified enterprises index. It is vital that businesses acknowledge emerging trends and know what existing and potential customers desire and value. For example, our index indicates pet ownership has increased by 14% over the past two years. This trend presents opportunities for rural businesses such as catteries, kennels, pet pampering and businesses could also explore offering more animal-friendly services.

Weighted index

The downward forces enacted by external factors, including the Covid-19 pandemic and volatile weather patterns, ultimately weighed heavily on the overall index, with a combined decline of 5% in 2020. However, there were notable bright spots in this difficult year, thanks in no small part to the flexibility, enterprise and dynamism displayed by many rural businesses.

_{Read the articles within Spotlight: Rural Diversification below.}