FARMERS in England made a record £300m from diversification projects last year and, in the North-East and Yorkshire and Humber regions the total earned from non-agricultural projects stood at £23.8m.

Total income from farming in the UK last year fell by 5.4pc to £3bn, largely because of low prices and higher costs, and an estimated 62pc of farming households supplement their income by diversifying into other activities or through outside work.

More than a third of farmers in the two regions have diversified - about 370 have gone into sport and recreation; more than 590 are running tourist ventures and more than 300 are involved in processing and retailing.

The Department for Environment, Food and Rural Affairs' Farm Business Survey showed that 48pc of full-time farmers had diversified, with the average earnings from diversification of £5,000 per farm. Turnover from such ventures rose to £550m, compared with £425m in 2002-3, with 2,200 farms achieving turnovers of more than £50,000 from diversified businesses.

Farmers in the South-East earned the most - £111.7m - from diversification schemes, followed by the East of England at £61.5m and the South-West at £37.6m. The East Midlands were next on £30m; followed by the North-East and Yorkshire and Humber on £23.8m; the West Midlands on £23.4m, and the North West on £10.2m.

In general, more farms in the East have diversified than in the West and the proportion of farms where farming is the sole source of income is higher in the North.

Defra offers a number of incentives to help farmers diversify, particularly the Rural Enterprise Scheme (RES). Since its launch in October 2000, more than £34m has been awarded in grants to help farm diversification projects.

Brothers Andrew and James Voakes used a Defra RES grant to produce award-winning pork pies on their farm in Whixley, between Harrogate and Knaresborough.

Andrew Voakes, who is also a trained butcher, had made and sold award-winning pork pies, baked to a secret recipe, at his butcher's shop in Harrogate for many years.

James Voakes said: "We were looking into farm diversification and the idea of making pork pies from our own home-reared and quality assured pork was a logical combination of our skills. The RES grant has helped us to turn the idea into reality."

James Hodgson, a Defra Rural Development Service adviser in Yorkshire and the Humber, said the project was an excellent example of a well-thought-out diversification plan. "The Voakes brothers looked at their skills and assets and put the two together to produce a sound business proposition," he said.

Tony Cooke, chairman of Framework for Change, the Regional Strategy for the Sustainable Farming and Food Programme, said diversification could benefit both the farmer and the rural community.

"Apart from providing a valuable service to local communities, it also enables farmers to remain within farming while supplementing their incomes," he said. "The creation of new businesses can also boost the local economy by creating employment opportunities."

Lord Whitty, Food and Farming Minister, said the fall in farm income was disappointing: "But these figures also show that diversification is an increasingly important earner for farmers, and diversification activities are becoming more and more successful."

He said the drop in incomes was down to lower market prices for cereals, potatoes, cattle and sheep, and a rise in input costs largely as a consequence of higher world oil prices and exchange rate movements. Incomes did, however, remain much higher than the levels seen at the low point of 2000.

The NFU said the fall in farm incomes, mainly owing to increased costs, highlighted the need for a rise in farm gate prices.

Dr Derrick Wilkinson, NFU chief economist, said the new Single Farm Payment, which replaces subsidies, would separate support from food production. "This will allow the industry to achieve a more long-term profitable position," he said. "Many farmers will see their single farm payment as a financial cushion while they implement their new business plans."

For many, diversification had provided a lifeline. "But as far as the bulk of professional farmers are concerned, it is unlikely to provide an alternative to their core business, which is producing quality, good value food," said Dr Wilkinson.