Something is stirring down on the farm. Rising fuel and feed costs and a continuing squeeze from the supermarkets mean the rewards from agriculture make it increasingly difficult for farmers to rely on land alone.

Diversification is the name of the game.

According to a new survey by Clydesdale Bank, half of those questioned had either already diversified or are thinking about it in the next five years. Even with land values rising and increasing demand pushing up the price of food, the trend is expected to continue.

Some are setting up organic food shops, using spare capacity to set up a bed and breakfast and others are simply taking second jobs. But the fact is that it is increasingly difficult to make a living from agriculture alone.

Agriculture accounts for a small part of Scotland's economy - just 5% of the rural workforce - and contributes only 1.3% gross value added to the Scottish economy.

But in country areas, where the industry is regarded as an integrated part of the rural economy, the contribution to economic, environmental and social benefits can be significantly higher.

“The importance of agriculture to the Scottish economy is often underestimated,” said David Douglas, head of rural business at Clydesdale Bank.

“The numbers may be low, but without it we would face higher costs for food and, as food increases in price around the world, we would be more vulnerable if we did not produce much of our own.

“It is a big part of Scotland's natural resources but there has been a big disconnect between urban and rural areas which has fed this underestimation.”

Last week, National Statistics published details of Scottish farm incomes in 2006-7 gathered from a sample of 458 farms, representing the largest 13,000 farms in Scotland, but excluding the pig, poultry and horticulture sectors.

Average figures for 2006-7 show that, overall, net farm income increased by £8,078. The average value of subsidy and payments was £38,400, accounting for 29% of total farm outputs but around 23% of farms had a negative NFI, with smaller farms more likely to be in this position than larger farms. The figures also back the view that diversification is vital. Overall, the non-farming income of the farmer and spouse, both on and off the farm, averaged £10,316. Almost half of this income was earned from off-farm employment and self-employment (48%) and the highest level of non-farm income was for small farms (£11,154).

Douglas, who runs a small sheep farm, said that diversification played an important part in securing farms' futures.

“Farmers have been badly hit in recent years by things like foot-and-mouth and bluetongue, which has made it harder, especially for small farms” he said.

“By diversifying, they are spreading income and ensuring they have as high a standard of living as possible while maintaining the family tradition.”

Clydesdale's rural tradition stems from buying up smaller country banks as it developed in Scotland. “We try to help farmers in many ways, from helping them utilise part of the land to assisting in setting up a new business,” said Douglas.

“We do approach them in much the same way as any business, but understand there are unique issues they face.”

Dairy farmers Willy and Jo Templeton cut dairy cow numbers from 130 to 60 three years ago in a drive to start making money from milk. The decision was made after they took over the Syke herd of pedigree Ayrshires of Willy's parents, Robert and Helen. Their assessment of the future at Syke Farm, Mauchline, was that either cow numbers needed to increase or some added value income had to be found. The solution they came up with was ice cream.

Within six months, business returns justified an upgrade to a 50-litre-an-hour ice cream unit.and they opened an ice cream parlour last October on a plot of land next to the A76.

They now produce 500 litres of ice cream a week. It still represents a relatively small percentage of their milk output but an encouraging rate of growth.

Jay Crawford, another Ayrshire farmer, has diversified into biofuels and a farm shop. His parents, Jim and Cecilia, established a retail shop at Dowhill Farm, near Turnberry, many years ago. Then, in 2000, they added a farm restaurant and two retail units for rental to other traders.

The family recently purchased Seafield Stores in Ayr, a post office and general store in an excellent trading location.

“It has worked out well,” said Jay. “It is a good location and people these days like to know that the produce is local.”

While there is much room for gloom and doom in farming in the wake of the credit crisis, Douglas remains optimistic.

Food prices rose by 5.6% in the 12 months to March and experts believe that they will continue to rise above the average inflation rate for this year at least.

“Rising food prices are a help but suppliers always face pressure from customers to keep costs down,” Douglas said. “It is about helping farmers through a tough period.”

Explore Industry Sectors

• Banking & Finance

• Construction & Property

• Consumer Goods

• Engineering

• Health

• Industrials

• Leisure

• Media

• Natural Resources

• Retailing

• Support Services

• Technology

• Telecoms

• Transport

• Utilities

Times Recommends

• B&B shareholders forced into funding rescue
• John Lewis department store sales plunge 8.3%
• Families turn to credit to cover mortgage bills