MORE and more British farmers are diversifying into horses, as returns from traditional livestock and arable farming continue to weaken.

According to a new survey from rural business advisors Strutt & Parker, three quarters of farms have set up some sort of equine enterprise over the last 15 years.

Of these, almost a quarter (23pc) have been set up in the last two years, backing up recent figures from the British Equine Trade Association, which reported a 20pc rise in the number of horse riders and a sharp increase in the number of horses kept in this country between 1997-99.

On the face of it, the new figures suggest that the government is on the right track in seeking to encourage more farmers to consider diversifying into horse-based leisure projects under its rural enterprise scheme.

But they could also explain why so many established riding schools and livery stables have gone out of business in the last few years as new entrants muscle into the market.

The most popular form of new equine enterprise to be set up is do-it-yourself livery, where the farmer only has to supply land and suitable stabling, while the horse owner provides everything else, including the labour.

But many farmers and estate owners avoid even that level of involvement, preferring to lease land and buildings to a tenant who then sets up and runs the enterprise.

Some 65pc of equine enterprises are let out in this way, with just 35 pc being run in-hand.

Almost three-quarters (71pc) of the farmland that has been "lost" to horses would formerly have been grazed by cattle and sheep.

By contrast, former arable land accounts for just 8pc of the land now used by horses.

Although most of the equine enterprises set up are small in scale - 55pc involve fewer than ten horses and occupy less than ten acres of land - they can offer attractive returns to farmers lucky enough to be in areas where demand is high.

Annual rents for land let to horses can achieve a premium of approximately £200-500 per acre and can be even higher in areas where horse owners are competing with each other.

"Letting out the odd small paddock for horse-grazing has always been a nice little earner for farmers, as horse owners are often content to pay a premium," says Ed Hewetson of Strutt & Parker's Morpeth office.

"But this survey shows there has been a sea-change in the scale of such enterprises and in the potential returns.

"There is no doubt that for landowners fortunate enough to live in the right areas, some form of diversification into horses can be a profitable affair."

However, he added: "Before farmers rush to convert their redundant buildings to stabling, they should seek advice on the strength of demand from local horse owners and on any alternative uses that the land, and particularly the buildings, might be put to more lucratively.