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Charcoal Products

4 Business Plan

Charcoal Products Franchise Model Summary

The Product or Service Managing the processing, marketing

and distribution of UK produced
charcoal products - barbecue charcoal
and horticultural charcoal (fines).

The Market Primary: domestic consumers of

charcoal for barbecue use; secondary:
consumers and manufacturers of
horticultural potting compost

The Opportunity To create a market and develop sales

channels for British charcoal and
horticultural fines

The Co-operative Advantage A producer group has the incentive to

invest in developing the market for a
quality product in the face of price-
based competition

Type of Farmer Marketing Group Industrial and Provident Society

Size of Farmer Marketing Group Minimum 5 charcoal burners producing

approximately 20,000 kilos of charcoal
in the first year

Market Overview
As the demand for industrial charcoal declined over the second half of the twentieth
century, a new market has appeared for barbecue charcoal. The consumption of charcoal
mainly for cooking purposes has grown from around 25,000 tons in the 1960s to some 50-
60,000 tons at the present day1. In contrast, UK charcoal production has shrunk from 35,000
tons in 1945 to
15,000 tons in the 1960s to fewer than 6,000 tons today. With barbeque charcoal retailing
at around £1 per kilo, the market is therefore worth around £60 million per annum, with
the British market share of 10% worth £6 million.
There are an estimated 300 to 400 charcoal burners around the UK - most are not full time.
UK domestic producers operate one- or two-man kilns holding no more than 3,500kg of
wood and producing up to 600kg of charcoal. The main source of supply has shifted from
Western Europe to the developing countries headed by South Africa, Nigeria and Brazil.
Charcoal has become a worldwide commodity dominated by low cost Southern Hemisphere
producers shipping in bulk. Imported charcoal is typically produced in huge “Missouri” style
kilns with a capacity of 35 - 50 tonnes.2 The economies of scale are therefore quite different.

Collins, E.J.T (ed): Crafts in the English Countryside: Towards a Future, May 2005
1 ton equals 0.907 metric tonnes

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The Quadrangle, Banbury Road, Woodstock
Oxfordshire OX20 1LH
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British charcoal possesses technical advantages over most imported charcoal: it ignites more easily, reaches cooking
temperature more quickly, generates more heat over a longer period of time, has a higher ratio of solids to fines and
produces less smoke. Many tropical charcoals tend to be dense, poorly carbonised and less volatile. In terms of heat
output and convenience British charcoal can be technically better value than many of its rivals, but this is not always fully
reflected in the price differential. The environmental damage being caused by deforestation in the developing world is
not taken into account, and neither are the carbon emissions of the shipping miles.

There is also another market for charcoal products which is largely untapped. “Fines” are the fragments of charcoal which
are too small to sell for barbecue use, and which have been regarded as a waste by-product. However they can be used to
enrich horticultural potting compost and to improve its water-retaining abilities. Now that the use of peat in potting
compost is reducing for environmental reasons, there is an opportunity to market fines as an additive to potting compost.
The product could be sold to the manufacturers of compost for use as an additive in existing products, or direct to the
general public.

Further markets exist for charcoal dust, which is used in the pharmaceutical and chemical industries for odour control and
filtration. Although relatively high value, this is a small, specialised market with very specific requirements and equipment.
There are also niche markets for animal nutrition and artists' charcoal. None of these markets have been included in the
model business plan, but the animal nutrition market could be supplied with minimal equipment outlay if the opportunity

The Opportunity
British charcoal has many unique selling points which can be exploited. The main challenges are promoting the product,
educating the consumer and establishing channels to market. Only British charcoal burners themselves have any incentive
to do this. By forming co-operatives, the charcoal burners can pool their resources to work on market development, and
acquire the economies of scale and continuity of supply necessary to supply the market outside their immediate locality.

The aims and objectives of a charcoal burners' co-operative are to:

5 produce premium quality charcoal from sustainably managed woodland;
5 operate a central packaging facility to grade, pack and deliver charcoal products;
5 create access to local, regional and national sales channels;
5 provide an income stream for woodland workers which contributes towards the viability of their livelihoods.

The final point above requires some explanation. The Business Model below shows that no one can expect to make huge
profits from charcoal burning in the UK. The majority of co-operative members are expected to be foresters, who make
charcoal from woodland arisings (i.e. the thinings from coppicing woodland) on a part-time basis, and for whom the sale
of charcoal is one of a number of income streams.

The co-operative will help provide a livelihood for forestry workers in two ways. Firstly, it will create a market for charcoal
products, and secondly it will provide part-time employment for the members who operate the grading and packaging
machinery. The co-operative will benefit rural areas by providing employment and income, and benefit the environment
by reducing CO2 emissions and de-forestation. It will help enable British woodlands to be properly managed for the
benefit of wildlife.

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Market Sector Analysis

Key Success Factors
Chapter 3 identified the Key Success Factors that will enable farmer marketing groups to establish successfully in specific
market sectors - the sector should be emerging, fragmented and co-operative friendly. The market for commodity
barbecue charcoal is established, and the 70% of the retail side is consolidated in the hands of the major supermarkets,
DIY centres and petrol retailers. Some of these retailers deal direct with the suppliers, but most use the services of the
wholesale trade. However, the market for British charcoal is not consolidated - organisations are generally small or micro
businesses. They supply local outlets direct, and also market through Farmers' Markets, country fairs and agricultural
shows - although some have contracts with the large retailers. The market for horticultural fines is both emerging and

Michael Porter's Five Forces Analysis is used to consider the competitive forces acting in this market sector in more detail:

Porter's Five Forces Model 3

Porter, M E: Competitive Strategy: Techniques for Analysing Industries and Competitors, 1980

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Industry Structure

Competitive rivalry HIGH Distribution is concentrated and

competition is entirely based on price.

Bargaining power LOW Supply side inputs are minimal and

of suppliers widely available.

Bargaining power HIGH The charcoal market is price-based and

of customers there are many suppliers. British
charcoal will have to compete on
quality benefits and its environmental

Threat of new entrants MED/LOW Many overseas producers already.

There is a risk that British producers
could end up competing with each
other on a price basis if market fails
to grow.

Threat of substitutes MED Gas barbecues already exist and have

advantages in ease of use but are
more expensive. There is some risk of
substitutes in the horticultural fines

Market Factors Impacting the Business

IThe following table analyses the political, economic, social and technical factors which affect Woodland Products:

PEST Analysis - Woodland Products

Political Economic

Environmental damage caused by Additional cost of British charcoal

deforestation in the developing world
Level of demand amongst
Global warming impact of importing horticultural companies for fines as a
charcoal from around the world compost additive

Positive impact of British charcoal

burning in forestry management and
rural employment

Social Technical

Low level of knowledge amongst the

general public of the qualities of
British charcoal or the environmental
issues surrounding imported charcoal

Public interest in rural and

environmental issues

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Issues around transporting, storing
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Access to sales channels

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Three key issues arise from this analysis:

5 Customer Awareness;
5 Market Access;
5 Price.

Customer Awareness
Barbecue Charcoal
British charcoal can establish a market share as a sustainably-produced, quality product aimed at “green” consumers and
consumers interested in a local, quality product. British charcoal enables proper forestry management and does not
destroy rainforest. It supports jobs in the rural economy and uses much less CO2 in its transportation. It is easy to use
because it lights easily and burns hotter. These benefits need to be promoted to consumers. This does not necessarily
involve expensive advertising - a carefully planned PR campaign would be less costly and probably more effective.

Charcoal also lends itself to branding. It is sold packaged and can be identified by a name and a logo. There is
considerable potential for British charcoal to displace imported charcoal, which is usually own-brand or generic.

PR and branding are covered in more detail in the Marketing Strategy section below.

Horticultural Fines
Only 80% of charcoal is suitable for barbeque use. Pieces smaller than 20mm, but larger than 5mm, are classed as
horticultural fines. The benefits of charcoal as an organic soil improver and conditioner have been known for many
years, it:
5 retains moisture and improves drainage;
5 helps prevents water stagnation in ponds;
5 retains moisture in potted plants, including bonsai specimens;
5 is an excellent mulch or top dressing;
5 improves nutrient uptake from soil; and
5 is high in potash with a pH value of between 8 and 9.

Despite this, charcoal is not routinely added to potting compost, nor is charcoal readily available as a soil conditioner in
garden centres. There is clear potential here which needs to be tapped both by building consumer awareness and
establishing channels to market.

Barbecue Charcoal
Imported barbecue charcoal sells for as little as £2.00 per 3kg bag (66p per kg) whilst British charcoal typically retails at
between £3.50 to £4.99 per 3kg bag (116p to 166p per kg) or £2.99 - £3.99 per 2kg bag.4 The reasons for this price
differential are mainly to do with economies of scale and the price of labour. The UK will never match the production
scale of Southern African or South America, nor their labour rates.

Internet research, April 2006
Business Plan

Many consumers buy the cheapest charcoal available, being unaware of any quality issues. The challenge of educating the
consumer about quality has been addressed above. The charcoal burners who took part in our research believed that price
in itself was not an obstacle to purchase if the benefits were understood, and repeat purchases readily occurred once the
product had been tried. British charcoal may actually be cheaper because it is so much more effective. The main barrier is

Horticultural Charcoal
Horticultural charcoal is only available at a limited number of outlets, or on the internet. The price is between £5 and £6
per kilo, and it normally retails in small packs of 350g or 500g, with a pack price of £2 - £2.50. This represents a much
improved margin for the manufacturer, but it is a small and specialised market.

Market Access
Barbecue Charcoal
Centralised bulk buying means that British charcoal produced in small batches is difficult to sell through national and
regional chains of supermarkets, DIY stores and garages. National retail chains are estimated to control at least 70% of
the charcoal market5. Producers are heavily dependent on local sales channelled through independent outlets, mainly
small shops, farmers' markets and fairs.

The potential market for British charcoal is considerable, especially amongst leading supermarket chains. Retailers such as
B&Q and Co-op stores have already stocked British charcoal in a small number of stores, and sales have been acceptable.
However, national supply contracts require delivery schedules to be met and economies of scale achieved in order to drive
down costs. These challenges could be met by a producer co-operative. Good marketing, clear branding, reliable supply
and realistic business plans are required.

Horticultural Charcoal
Channels to market need to be created from scratch. There are two potential routes: either create a branded product and
sell it through garden centres, or sell the basic product direct to manufacturers of potting compost and other horticultural
goods. Comments above regarding the need for good marketing, economies of scale and reliable supply also apply.


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Oxfordshire OX20 1LH
Tel: +44 (0)1993 810730 Fax: +44 (0)1993 810849 E-mail:
Business Plan

The Business Model

This is the outline business model for a charcoal products co-operative:
5 a group of charcoal burners sets up a co-operative and each member commits to selling a specified weight of charcoal
through the co-op each year;
5 members of the co-operative elect a Board who have similar responsibilities to directors of companies;
the co-operative buys in the expertise to promote and market its products, initially on a freelance or part-time basis;
5 the co-operative sets up a central processing facility to grade, pack and deliver charcoal and fines; these facilities are
operated by co-op members; and
5 members pay a marketing/processing levy on all charcoal sold through the co-operative; this levy funds the cost of the
central processing facility, marketing and administration.

Advantages of the Co-operative Business Model

In order to develop a regional or national market for both charcoal and fines, producers need to work together. They
alone have an interest in promoting British charcoal products and establishing new routes to market. Only by acting
together can they develop the critical mass, economies of scale and reliability of service needed to supply these markets.
By combining forces they can establish a central processing facility and acquire the expertise to market the product

Charcoal burning is by its very nature an isolated and solitary occupation. Many small producers are not specialist charcoal
burners and will switch between charcoal making and other coppice and greenwood work according to seasons and
perceived demand. The co-operative will need to address issues of training, quality control and particularly commitment
at an early stage.

Legal Structure
The recommended legal structure for a Woodland Products co-operative is an Industrial and Provident Society (I&PS). This
is the traditional and best-know form of co-operative organisation. An I&PS has limited liability in exactly the same way as
a company limited by shares or by guarantee. The characteristics of a standard I&PS co-operative are as follows:
5 one member one vote;
5 return on capital must be limited;
5 if surpluses are to be shared among the members, this must be done in proportion to the fees or subscriptions
paid; and
5 no artificial restrictions on memberships.

Co-operative Principles
A co-operative is an organisation set up by its members, controlled by them and run for their benefit. The benefits
derived from its commercial activities are returned to the members in relation to their use of its services or facilities and
not on the basis of their investment. A co-operative is an extension of each member's own business and is managed in
such a way to obtain better incomes and/or improved services for its members.

Democratic control, fair and equitable treatment for all members and the opportunity for the transfer of information and
knowledge amongst the membership are amongst the core values of a co-operative organisation. However, it must always
be remembered that a co-operative exists in the same commercial environment as investor led businesses and therefore to

Plunkett Foundation
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Oxfordshire OX20 1LH
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be able to compete must adhere to sound business practices in areas such as planning, marketing and finance.

Plunkett Foundation
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Oxfordshire OX20 1LH
Tel: +44 (0)1993 810730 Fax: +44 (0)1993 810849 E-mail:
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How to set up the Co-operative

Industrial and Provident Societies are governed by different regulations to limited companies, but the principles are very
similar. The following is a summary of how the system works.

I&PS are registered under the Industrial and Provident Societies Act 1965-2002. To qualify for registration a body must be
a bona-fide “co-operative” carrying on an industry, business or trade, whether retail or wholesale. I&PS are administered
by the Mutual Societies Registration Section of the Financial Services Authority (FSA).

The Industrial and Provident Societies Acts are generally more sympathetic to social benefit and co-operative organisations
in that there are fewer administrative and legal requirements, although it is still necessary to keep accurate records of
membership. I&PS legislation is generally less complicated, putting more trust in the directors to act in “good faith”.
Annual fees based on size of co-operative are payable to the FSA

This is the procedure for setting up an I&PS.

5 A minimum of three members are needed to register and maintain an I&PS.
5 The governing document for an I&PS is known simply as the “rules”.
5 Co-operatives UK and the Plunkett Foundation have developed a set of “model rules” (standardised governing
documents which have been previously approved by the regulator) which are suitable for a Charcoal Products
5 Model rules must be presented through a sponsoring body. The current cost of registering an I&PS through
Co-operatives UK using a set of model rules is £650.
5 Specially written rules can be used, but the process will be slower and more expensive as the regulator examines the
rules more carefully. The Co-operatives UK model rules can incorporate up to six minor changes after initial
registration at no additional cost.

Member Commitment and Member Agreements

The co-operative's primary purpose is to provide services for its members and a member's return depends on his use of its
services or facilities rather than his investment in it. It follows that, ideally:
5 members should be committed to use the facilities;
5 investment by members should be related to these commitments; and
5 control should be in the hands of committed members.

One of the conditions of membership (possibly the most important) that should be included in the Rules is that
members should be required to sign an agreement to set out their participation in the activities with their co-operative.
Failure to sign such an agreement (Members' Agreement) can prevent a producer obtaining or retaining membership.
This ensures that all members are committed to use the organisations facilities and that control is fully in the hands of
committed members.

Member Agreements set out the responsibilities of both parties each to the other and particularly:
5 to ensure that members are committed to using facilities or services for a minimum period (usually one year);
5 to set out the quantity or percentage of members produce that will be committed to the organisation for marketing;
5 to ensure that investment and charges paid by members relate to both commitment and actual usage;
5 to set out how the operational activities of the organisation are to be administered;
5 to bind the organisation to the marketing of committed produce and to the provision of services;

5 to ensure the stability of the organisation, and give confidence to members, customers, suppliers and bankers;
5 to ensure continuity of supplies to customers; and
5 to ensure the protection of the member in his relationship with the organisation and the protection of members
between themselves.

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The Member Agreement requires considerable thought and discussion if its objectives are to be fulfilled. The specific
requirements and circumstances of a particular organisation should be taken fully into account. Appendix 1 illustrates the
type of information that should be included in a Farmers' Markets Member Agreement, and provides a guide upon which
organisations may begin to formulate their individual agreements.

The legal structure and associated internal documents (e.g. Member Agreements) under which co-operatives are formed
and operate should satisfy and be driven by the aims, objectives and operational needs of the business and its members,
and not the other way round. Early professional advice should be sought to ensure this condition is met. Plunkett and Co-
operatives UK have developed a template for Member Agreements which would enable them to construct a Member
Agreement suitable for a Charcoal Products co-operative.

Costs of Establishment
The current total cost of setting up a co-operative will be approximately £2,000. This includes the Model Rules and the
Member Agreement offered by Co-operatives UK and Plunkett, together with appropriate legal advice.

Corporate Governance
All co-operatives have some measure of good corporate governance built into their legal structure. The way in which a
business is run by its Board of Directors is, subject to compliance with law, very much a matter for the Board alone.

However, there are four main areas of responsibility that apply to all Boards.
5 Strategy - The Board should set the co-operative's values and standards and ensure that its obligations to its members
and others are understood and met.
5 Monitoring - The Board is collectively responsible for promoting the success of the co-operative by directing and
supervising the co-operative's affairs.
5 Risk - The Board's role is, together with the executive management, to provide entrepreneurial leadership of the
co-operative within a framework of prudent and effective controls which enables risk to be assessed and managed.
5 People - The Board should set the co-operative's strategic aims, ensure that the necessary financial and human
resources are in place for the co-operative to meet its objectives, and review management performance.

Within the responsibility for people, the Board needs to consider its own position regarding Board size and tenure of
Board members. The inclusion of a non -producer director (s) should also be considered to alleviate any skills deficit from
within the board elected by the membership.

Recognised best practice standards exist in the form of “The Combined Code on Corporate Governance” published by the
Financial Reporting Council in July 2003. The Code contains 17 main principles divided into 5 areas: directors,
remuneration, accountability and audit, relationships with shareholders and institutional shareholders. Adoption of the
code is voluntary, but there are some aspects of it that are clearly desirable to adopt. Chapter 6 below explains how to get
a copy of the Code.

Directors' Responsibilities
The Directors have the following responsibilities:
5 to members, for the safeguarding and husbanding of the assets, and for the effective conduct of the business;
5 to employees, for job security, and for reasonable working conditions; to creditors, for the due payments of debts; and
5 to the general public, particularly the local community, not to act against the public interest, e.g. pollution or noise
late at night, etc.

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A director may be held liable at law, for behaving irresponsibly or fraudulently. Directors who act honestly and in good
faith for the good of the co-operative, with knowledge of the co-operatives legal requirements and activities are very
unlikely to be held liable.

The directors usually appoint from amongst their number a chairperson who has the primary role of supervising the work
of individual Board members and ensuring that Board decisions are implemented. He/she will chair Board meetings and
will be the arbitrator in differences in opinion between Directors. He/she will also ensure that the legal obligations of the
Company are met.

It is good practice to allocate specific responsibilities to other board members to maximise the benefit of the skills that
they bring to the board. For example individual directors may have the responsibility for finance, marketing, production
and membership.

Organisational Structure
The organisational structure is simple. The Board is elected from amongst the co-operative members. Four Board
members with specific areas of responsibility are recommended: Chairman, Treasurer, Marketing Director and Production
Director. The Board members perform the same roles as the directors of a shareholder owned company and carry the
same legal responsibilities.

The diagram below shows the organisational structure:


Treasurer Marketing Director Production Director

EXECUTIVE Marketing Co-ordinator Processing Labour

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Roles and Responsibilities
Board Members' Roles
The Chairman is responsible for supervising the work of individual Board members and ensuring that Board decisions are
implemented. He/she will chair Board meetings and will be the arbitrator in differences in opinion between Directors.
He/she will also ensure that the legal obligations of the Company are met.

The Treasurer will keep records of income and expenditure, creditors and debtors and will regularly keep the Board
informed of the financial position. He/she will regularly produce forecasts for future financial decisions and will advise the
Board of the likely financial effects of decisions.

The Marketing Director will be responsible for planning the marketing strategy and overseeing its implementation.
Together with the Board he/she will decide on product pricing and negotiating terms and conditions of supply of

The Production Director will be responsible for co-ordinating the delivery or collection of charcoal from members,
processing and packing and supply of products to customers. They will also oversee the safe and effective operation of the
central processing facility, and will claim expenses for this work. Together with other members of the Board the
Production Director will plan for future production quantities and methods.

Labour will be hired by the hour as and when needed to operate the processing and packing facility. Co-op members
could undertake this work, overseen by the Production Director. Health and safety factors and training needs when
operating machinery must be remembered. In the first two years there is no provision for a salaried manager for the
central processing facility, but this is included from year three onwards. In practice, this salary may be paid to the
Production Director as expenses.

The co-operative will also employ a Marketing Co-ordinator to work with the Marketing Director and help implement the
marketing strategy. Initially at least, this appointment will be on a freelance basis, with the Co-ordinator working from
home. The co-ordinator will promote the co-operative's products, build brand recognition, seek new customers and
establish new sales channels. They will also attend events such as country fairs where British charcoal can be demonstrated
and sold.

The Central Processing Facility

The co-operative should establish a central processing facility to grade, pack and store charcoal.

Individual members will be responsible for the production process itself (harvesting wood, stacking the kilns and burning).
The co-operative can co-ordinate the sharing of woodland equipments as well as help, advice and training in this regard.
Benchmarking of production margins between individual processors would help each member produce the desired quality
at the lowest possible cost.

The profitability of the business will largely be determined by the efficiencies of the central processing facility. The co-
operative organises delivery of the charcoal to the central site where it can be graded, bagged and stored ready for
delivery. It is assumed in the Financial Model given below that a suitable site for the processing facility can be obtained at
minimal cost by renting land and facilities belonging to the members. The building doesn't need to be sophisticated, just
dry - a farm building or barn with a concrete floor is sufficient. A major quality issue is controlling the moisture content
and a good processing facility and proper storage under cover can ensure better consistency. The Financial Model allows
for 3,000 square feet of space. Grading and packaging machinery is required, and the Financial Model includes figures for
the purchase of a second hand grader, packer, simple weighing station and a bag stitcher. A fork lift truck is also needed
to handle bulk material and pallets.

All British charcoal should be produced from FSC (Forestry Stewardship Council) certified woodlands6.


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Marketing Strategy
The objectives of the marketing strategy are to:
5 generate consumer knowledge and interest in British BBQ charcoal and horticultural charcoal; and
5 establish routes to market for charcoal produced by the co-operative

The Products
The two products - barbeque charcoal and horticultural charcoal - that the co-operative will produced have already been
described above. The market analysis indicates that there is a demand for both products, which will have to compete on
quality, rather than price.

The benefits of the British barbecue charcoal to the consumer fall into three categories:
5 quality benefits:
– easy to light - no need for lighter fluid or fire lighters;
– burns at a hotter temperature, so cooks better;
– stays hot for longer, so you need to use less;
5 environmental benefits
– no rain forest damage;
– considerably less energy used in transport;
– enables proper forestry management (“coppicing”) which benefits wildlife and improves the appearance
of the countryside;
5 benefits to the local economy:
– creates employment in the rural economy; and
– provides trade for village shops, farm shops and local markets.

The main focus of promotional efforts should be on the quality benefits, with the environmental and local economy
benefits in second place. Consumers generally find self-interest benefits more appealing than selfless ones.

British horticultural charcoal has no specific advantage over imported, but competition is less intense. Establishing a
market is the priority.

Barbecue charcoal will be packaged in 2kg bags - the reasons for this are outlined in the section on Pricing below. A
simple paper sack is printed with the co-operative brand and outline quality benefits.

Horticultural charcoal is available in 500g pouches, again branded with the co-operative logo.

Pricing Policy
Barbecue Charcoal
Imported charcoal will continue to retail at a lower price than British charcoal. The product will have to compete on
quality, and the findings of the charcoal burners who took part in our research indicate that it can do that - consumer
price seems to be reasonably elastic if promotional efforts focus on the quality of the product. ABC1 consumers may not
be unwilling to pay £5-6 for a £3kg bag when the organic meat they intend cooking on the barbeque cost three or four
times that much.

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The size of bags can affect the price perception of customers. A 2kg bag is lighter to carry and contains enough charcoal
for one average barbecue. This may sell better at some outlets such as Farmers' Markets where parking is likely to be
further away. A 2kg can take a price of £3.99 when the imported competition is priced at £2.99 - consumers are more
likely to notice the pack price and less likely to work out the comparable price per kilo. The Financial Model assumes a
pack size of 2kg.

Our telephone research, carried out in May 2006 indicated that trade customers will expect to mark up by 100% or
possibly more7.

Horticultural Charcoal
The margin on fines is considerably higher. The product can be sold in 0.5kg bags for around £2.75 each, giving a
wholesale price of around £2.75 per kilo (barbecue charcoal wholesale price is £1 per kilo). There is no research available
on consumer price perception for this sector, but it seems unlikely that price is a barrier.

Sales Channel Development

In the early years, the co-operative will need to pursue a wide range of different sales outlets and routes to market in
order to establish the products and gain critical mass for the business. Thereafter it will be able to concentrate on
developing its most profitable sales routes.

Barbeque Charcoal
The traditional outlets for charcoal are supermarkets, garages, garden centres and DIY centres -outlets with car parking
on site are preferred, as charcoal is heavy to carry. Charcoal is also sold at farm shops, farmers' markets, craft fairs and
country shows - anywhere that food or barbeques are sold is also a potential outlet for charcoal.

The co-operative needs to establish contact with regional and national supermarkets, DIY centres. Garden centres and
garages. Some will have a national buying policy, but others will be independent businesses or part of small local chains.
Although it will probably be easier to establish relationships with smaller, local businesses, the co-operative should
vigorously pursue deals with the multiples. A large, regional or national deal will provide logistical challenges, but will
offer the economy of scale needed to make the co-operative viable. The Marketing Director also needs to research and
establish contact with wholesalers in the region. Sales through these channels are all likely to be at wholesale price, so
bulk orders are important.

The other avenue to pursue is non-traditional routes to market, particularly direct sales to consumers at retail price.
Internet supply is feasible if the issue of delivery costs can be overcome. Consumers are prepared to pay for the
convenience of home delivery, but clever pricing and offers are vital. It may be possible to offer home delivery for
internet orders in the local area by using the members' own transport, or to set up an arrangement with another local
delivery network. Do any local shops deliver? Could the local butchers' shops deliver charcoal along with the barbecue
meats and sausages? Are there other fuel supplies such as coal or bottle gas merchants who might carry supplies, or even
the milkman? The Marketing Director must be energetic and creative - building this niche sector is vital to establish sales
at a higher margin.

Horticultural Charcoal
The main trade outlets for this product will be garden centres and DIY stores. Few outlets sell horticultural charcoal at
present, so the first step will be to create an understanding of the product benefits and persuade the buyers to trial the
product (see promotion strategy below).

Telephone research (unpublished) by Plunkett consultants, May 2006

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Promotion and Public Relations
A strong promotion and public relations strategy is the key to building a market for British charcoal, for barbeque and
horticultural use. The benefits have been outlined in the section above, and the promotion strategy must focus on
getting the message across to consumers. There will be limited funds available for this, so the promotional spend is
focused on areas which produce direct sales, with free publicity used to gain more general exposure of the products.

Advertising and Promotion

The Business Plan includes a marketing budget for the following items.
5 Branding. Establishing a brand for the co-operative's products is important. The brand name should be short and
snappy, and the logo needs to reflect the “green” credentials of the product. The brand name should always be
combined with the tag line “Quality British Charcoal” to benefit from any advertising or promotion done by others.
The brand should be used on all advertising and promotional materials and on the packaging.
5 Website. The co-operative will need a website with a shopping cart facility. The design and build of this has been
included in the set-up costs. Orders will be processed by the Sales and Marketing Co-ordinator, and fulfilled by the
Production Director.
5 Product demonstrations. These will be a key part of promotion strategy. These can take place at any retail outlet -
farm shops, garden centres etc. at weekends, or by taking stalls at country fairs. Country fairs will incur stall fees, but
promotional events at retail outlets should be free of charge. Costs could be reduced by joining forces with another
business -a manufacturer of locally-produced sausages, for example, or a plant nursery owner. Co-operative members
should be prepared to attend this type of event on a voluntary basis.

Press and Public Relations Activities

The Marketing Director should establish links with local food organisations and businesses. Selling local charcoal
alongside local food offers an opportunity to promote the quality, environmental, and economic benefits of both. Links
could also be made with any organisations in the region involved in promoting wildlife or woodland conservation or
similar areas, with the aim of generating joint publicity opportunities.

The British charcoal story is very media-friendly, as the product has so many benefits for the local area. The Marketing
Director and Co-ordinator should aim to get features in local newspapers during the barbecue season.

The co-operative could also run open days during the summer season, offering a tour of the woodland and a
demonstration of charcoal burning. This might be attractive to schools, but care would need to be taken to ensure that
health and safety requirements are complied with. These activities are not very costly in financial terms, but do take up a
lot of staff/member time.

The Marketing Director and Co-ordinator will need to be very pro-active and imaginative in creating publicity
opportunities. The co-operative has a limited marketing spend, so will need to leverage free publicity possibilities to
the full.

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Business Plan

The Financial Model below makes the following assumptions on the size of the co-operative and the amount of
charcoal produced:

Year Members Kilos Produced Sales Value Marketing Levy Member Payment per kilo

1 5 20,000 £27,500 80% £0.275

2 6 35,000 £46,500 70% £0.40

3 7 50,000 £68,000 65% £0.48

4 8 65,000 £90,250 60% £0.56

5 9 80,000 £112,500 58% £0.59

Production is divided between barbecue and horticultural charcoal as it is graded. Sales are also divided between the
two products, and assumptions have been made in the Financial Model about the value of these markets, and the amount
of product that can be sold through retail and wholesale channels.

Payment is made to members, less the marketing levy, once the charcoal is sold and payment has been received. The co-
operative does not own the product, it simply acts as a marketing agent.

The marketing levy is set at a rate of 80% of sales during year one, falling to 58% by year five. These rates are necessary
to cover the considerable value added to the charcoal during processing and packaging, and to pay for the marketing and
administrative operations (including set-up costs and the website in year one). Members also benefit from storage for
their product whilst it awaits sale.

The members may in later years receive a share of any surplus made, divided in accordance with the amount of charcoal
they have sold through the co-operative - see below for details of how this works.

Core Funding
A Woodland Products co-operative needs to invest in some assets, primarily machinery for the central processing facility.
The total sum required for the various items is around £10,000.

Start-up capital can be raised from two main sources - members' Qualification Loans and grant funding. Most co-
operatives will be eligible for grants under the England Rural Development Programme. Details of the schemes in
operation and the qualification rules can be found at: Local Authorities, charitable trusts and
other groups interested in woodland preservation may also offer grants. Please see Chapter 6 for more information.
Grants may only be available to cover part of the start-up costs (often 30-50%) so Qualification Loans will be required to
make up the difference. The Financial Model below shows that a qualification loan of £700 per member is required, with
the balance coming from grant funding and income.

Qualification Loans
Whilst there are many methods of introducing members funds into the co-operative a form of interest free loan has
become a preferred and widely used method of member investment, especially for a capital intensive project. It is often
referred to as a 'Qualification Loan'. The details for regulating this loan should be included in the members' agreement.
The amount required of each member is directly related to their commitment e.g. volume of product to be marketed.
Whilst accepting that this will vary year on year, the loans required can be adjusted annually to reflect this (either in
advance against the production/services profile or in retrospect against actual for previous year). Experience shows that
where members have a financial stake in the co-operative then they are more likely to support it and therefore increase
its chances of success.

The qualification loan is regarded as semi-permanent investment. The minimum period is covered by the initial term of
the members' agreement, and which usually covers the time to repay any outside borrowing.

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Business Plan

After any bank loans (in respect of capital investment) have been repaid, repayment of the qualification loan is usually at
the discretion of the Board of Directors. However, since all successful businesses require continuing funds for operation
and expansion, this will either come from reserves or from leaving the loans in place. In all cases the loans can be repaid
to members given the right financial circumstances and the directors' approval. If a member resigns in accordance with his
Members' Agreement, the directors must not unreasonably withhold their agreement to his repayment, but directors must
protect the group and remaining members from the effect of withdrawal of funds. New members would be required to
provide loans in the same way as existing members to ensure fair and equitable treatment for the membership as a
whole. However if the additional funds raised in this way result in an excess of funds required to run the business the
directors may decide to reduce the loan requirements for all members and to repay pro-rata the excess funds available.

Since the funding from members would be in line with their usage of the facility, no interest payments would be

It should be appreciated that qualification loans being 'member investment' are not a revenue cost chargeable against
profits in the members own business for tax purposes. As Qualification Loans are seen as 'semi-permanent' capital
(depending on the repayment conditions) banks will usually be prepared to consider them as member investment.
However, whenever capital investment is proposed to be financed in this way, approval by the lending bank should be
sought at the initial stages.

In the event of co-operative insolvency, qualification loans rank with other ordinary creditors, whilst shares are only paid
out when all other creditors have been satisfied.

The co-operative's revenue comes entirely from the levy it takes on sales of charcoal. This is why it is crucial that
overheads are controlled and the margin is maintained at an acceptable level.

The Financial Model shows that the organisation can be self-financing from the first year of operation, providing grant
funding is obtained. The business is self-sustaining from year x onwards. The co-operative must also take full account of
the voluntary work inputs from elected directors. The first year of operation shows an operating loss, which could be
reduced if more voluntary labour can be used. However, the co-operative must be certain that those offering voluntary
labour do possess the skills needed to do the job effectively.

The responsibility for financing the co-operative to ensure that it recovers its operating costs belongs to the individual
members. Losses made in the initial years, when throughput levels are being built up to an economic level, need to be
made good as soon as possible and it is bad practice to continually carry forward losses year on year on the premise that
'next year' will be better. Members are responsible for paying charges or levies that are sufficient to cover the cost of
running the organisation.

Initial losses if part of a planned budget can be covered by ensuring that members investment i.e. qualification loans are
set at a level to cover financing for this as well as the need for capital expenditure and general working capital. However,
the use of qualification loans in this way is only a short term option since the co-operative will be required at some future
date to repay the loans to its members. Grant aid if available would have the effect of reducing the initial operating loss
but must also be seen as a 'one off' and short term solution. A co-operative that sets out a business plan that is only
sustainable by the receipt of grant is failing to 'grasp the nettle' of ensuring that members take the responsibility of
funding their organisation effectively.

Surpluses and Deficits

The treatment of surpluses and deficits in relation to members within a co-operative is set out in the Memorandum and
Articles or Rules or additionally within the Member Agreement.

Surpluses or Deficits relating to each financial year should, after transfers to General Reserve (if any), be either repaid or
'notionally' allocated to members in accordance with charges paid by them or trade conducted by them during the annual
accounting period. Commonly, the directors have absolute discretion as to whether these reserves should be paid out
(or deficits recovered) and members are not entitled to any payment from a reserve fund until the directors exercise
that discretion.

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Business Plan

Any sums in allocated reserves are the co-operative's property. If the members were absolutely entitled to repayment of
sums in reserves, they would probably be liable to personal taxation on the 'allocated' sums as soon as they were put to
reserves. If a co-operative is to use this form of reserve fund, it is vital that the Member Agreements should make the
contingent nature of the members' position absolutely clear otherwise members are likely to be in difficulty with the
Inland Revenue.

Where provision is made for allocations to be made in this way it is important that Member Agreements are not in
conflict with the Rules or Memorandum & Articles on this issue and in particular it is important to ensure that on winding
up such allocated reserves are dealt with before any final distribution is made to members under a winding up clause of
any residual funds.

Financial Model
Woodland Producers Co-operative
Data Yr1 Yr2 Yr3 Yr4 Yr5
Membership numbers 5 6 7 8 9
Units of members’ charcoal sold
BBQ Charcoal retail sales 2.0 kg bag units 3,000 4,000 5,000 6,000 7,000
BBQ charcoal wholesale 2.0 kg bag units 5,000 10,000 15,000 20,000 25,000
Horticultural Charcoal retail sales 0.5 kg units 500 1,000 2,000 3,000 4,000
Horticultural charcoal wholesale 0.5 kg units 1,500 3,000 4,500 6,500 8,500
Horticultural charcoal wholesale (loose) per kg units 1,000 2,000 4,000 6,000 8,000

Weight of charcoal at retail point

BBQ Charcoal retail sales 2.0 kg 6,000 8,000 10,000 12,000 14,000
BBQ charcoal wholesale 2.0 kg 10,000 20,000 30,000 40,000 50,000

BBQ grade 16,000 28,000 40,000 52,000 64,000

Horticultural Charcoal retail sales 0.5 kg 250 500 1,000 1,500 2,000
Horticultural charcoal wholesale 0.5 kg 750 1,500 2,250 3,250 4,250
Horticultural charcoal wholesale (loose) 1.0 kg 1,000 2,000 4,000 5,000 6,000

Hortic grade 2,000 4,000 7,250 9,750 12,250

Hortic & BBQ in Kgs 18,000 32,000 47,250 61,750 76,250

Ratio of hortic to BBQ grades 12.5% 14.3% 18.1% 18.8% 19.1%

Ungraded Charcoal required to be graded (Rounded kgs) 20,000 35,000 50,000 65,000 80,000

Mail order & Post

Percentage of retail sales per Assumptions 40%
Cost of postage after deducting contribution £6.49 2,600 3,460 4,330 5,190 6,060

Record of Fines produced / sold / stocked. 100 Ungraded units provides 15 Units of Hortic byproduct

fines available kg 3,000 5,250 7,500 9,750 12,000
fines required kg 2,000 4,000 7,250 9,750 12,250

Fines in stock at y/e kg 1,000 1,250 250 0 -250

cumulative ‘Fines’ in stock kg 1,000 2,250 2,500 2,500 2,250
Waste is the 5% dust which is not recorded

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Business Plan

Sales of members’ product.

Yr1 Yr2 Yr3 Yr4 Yr5
£ £ £ £ £
BBQ Charcoal retail sales £4.25 unit 12,750 17,000 21,250 25,500 29,750
BBQ Charcoal wholeslale £2.00 unit 10,000 20,000 30,000 40,000 50,000
Horticultural Charcoal retail sales £3.00 unit 1,500 3,000 6,000 9,000 12,000
Horticultural charcoal wholesale £1.50 unit 2,250 4,500 6,750 9,750 12,75
Horticultural charcoal wholesale (loose) £1.00 kg 1,000 2,000 4,000 6,000 8,000

Total Sales Value 27,500 46,500 68,000 90,250 112,500

less: Levy retained by Co-op 22,000 32,550 44,200 54,150 65,250

Proceeds remitted to members 5,500 13,950 23,800 36,100 47,250

Co-op Income and Expenditure Account

Rate 80.0% 70.0% 65.0% 60.0% 58.0%
Levy required of Members, paid in to Co-op” 22,000 32,550 44,200 54,150 65,250
Revenue Grants receivable RES 11,007 7,151 6,176 4,662 2,599
Grant re Capital Asset (SL & released over 10 years) 500 500 500 500 500

Total income for Co-op. 33,507 40,201 50,876 59,312 68,349

Less: Direct costs

BBQ product line
packaging 0.18 £/unit 1,440 2,520 3,600 4,680 5,760
grading & packing labour 0.32 £/unit 2,560 4,480 6,400 8,320 10,240
grading & packing machinery repairs 0.15 £/unit 1,200 2,100 3,000 3,900 4,800
Postage costs of Mail order 2,600 3,460 4,330 5,190 6,060
delivery 0.12 £/unit 960 1,680 2,400 3,120 3,840

Added costs of BBQ charcoal production 8,760 14,240 19,730 25,210 30,700

Hortic product line

Charcoal - byproduct so not costed 0.00 £/kg
packaging 0.12 £/unit 240 480 780 1,140 1,500
grading & packing labour 0.32 £/unit 640 1,280 2,080 3,040 4,000
grading machinery Repairs - as by product no costs attributed. 0 0 0 0 0
delivery 0.06 £/unit 120 240 390 570 750
grading, labour & delivery, loose charcoal 0.20 £/unit 200 400 800 1,000 1,200

Added costs of Hortic Charcoal sold 1,200 2,400 4,050 5,750 7,450

Cost of BBQ & Hortic lines 9,960 16,640 23,780 30,960 38,150

Total income less Direct Costs 23,547 23,561 27,096 28,352 30,199

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Business Plan

Yr1 Yr2 Yr3 Yr4 Yr5

Less: Overheads £ £ £ £ £
Managers Salary 0 0 2,600 5,200 7,800
Marketing Co-ordinator 5,200 5,200 5,200 5,200 5,200
Book keeper / admin 3,328 3,328 3,328 3,328 3,328
Staff expenses & travelling costs 1,600 1,600 1,600 1,600 1,600
Directors expenses & travelling costs 100 100 100 100 100
Grading & packing machinery Running costs 1,000 1,000 1,000 1,000 1,000
Rent & rates 500 Sq ft 3,000 3,000 3,000 3,000 3,000
General Insurance 250 300 350 400 450
Computers & IT support 500 500 500 500 500
Misc, electric, Tel & Stationery” 735 800 860 930 960
Office Costs 15,713 15,828 18,538 21,258 23,938

Website (design & hosting) 2500 250 250 250 250

Leaflets & promo materials 300 300 300 300 300
Shows & fairs 700 700 700 700 700
Promotional Costs 3,500 1,250 1,250 1,250 1,250

Accountancy fees 700 700 700 700 700

Legal fees - formation costs 2,000
Interest paid
Bank charges 100 100 100 100 100
Admin Costs 2,800 800 800 800 800

Depreciation ( SL over 10 years) 1,000 1,000 1,000 1,000 1,000

Total Overheads 23,013 18,878 21,588 24,308 26,988

Net Loss / Surplus 534 4,683 5,508 4,044 3,211

Financial Notes
Grant Payable on
Rates in use 50% 40% 30% 20% 10%
Office costs 15,713 15,828 18,538 21,258 23,938
Admin costs 2,800 800 800 800 800
Gross costs 18,513 16,628 19,338 22,058 24,738
‘ => Grant 9,257 6,651 5,801 4,412 2,474
Promotion Gross costs 3,500 1,250 1,250 1,250 1,250
‘ => Grant 1,750 500 375 250 125
Grant rate 50%
Grant Reserve Account Asset at cost £10,000 5,000
SL release over 10 years 500 500 500 500 500

Reserve C / fwd 4,500 4,000 3,500 3,000 2,500

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Business Plan

Cash Flow
Yr1 Yr2 Yr3 Yr4 Yr5
£ £ £ £ £
Income & Expenditure Account 534 4,683 5,508 4,044 3,211
Add back: Deprn (non cash item) 1,000 1,000 1,000 1,000 1,000
Less: Annual credit from Grant Reserve (non cash item) -500 -500 -500 -500 -500
Cash from Operations 1,034 5,183 6,008 4,544 3,711

Add: Finance by Members

Qualification loans on Joining £700per head 3,500 700 700 700 700
Share capital £1per head 5 1 1 1 1
Add: RES Capital Grants on Capital equip. 5,000

9,539 5,884 6,709 5,245 4,412

Less: Capital Spend - Grader packing etc. 10,000

Balance for Year -461 5,884 6,709 5,245 4,412

Balance C / Fwd -461 5,423 12,132 17,377 21,789

Balance Sheets
Yr1 Yr2 Yr3 Yr4 Yr5
Fixed Assets At Cost 10,000 10,000 10,000 10,000 10,000
Accumulated Deprn. 1,000 2,000 3,000 4,000 5,000
Net Book value 9,000 8,000 7,000 6,000 5,000
Less Grant Reserve re F.A. 4,500 4,000 3,500 3,000 2,500

4,500 4,000 3,500 3,000 2,500

Current Assets
Cash in hand -461 5,423 12,132 17,377 21,789

4,039 9,423 15,632 20,377 24,289

Members funds

Share capital 5 6 7 8 9
Members Qualification Loans 3,500 4,200 4,900 5,600 6,300
Income & Expenditure account 534 5,217 10,725 14,769 17,980

4,039 9,423 15,632 20,377 24,289

Plunkett Foundation
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The Future Development section for the Charcoal
5 Planning for the Future

Products franchise model will be available shortly.

Plunkett Foundation
The Quadrangle, Banbury Road, Woodstock
Oxfordshire OX20 1LH
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The following organisations, websites and publications can provide additional
6 Further Help and Information

information for people interested in setting up a farmer marketing group based on

the Charcoal Products franchise models.


The Dorset Charcoal Company Wessex Coppice Group

Bioregional Charcoal Company Ltd

Author(s) Title Available from:

Collins, E.J.T (ed) Crafts in the English http://www.craftsinthe

Countryside: Towards
a Future, May 2005.

Plunkett Foundation
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A1 Appendix 1 Member Agreements

The legal structure and associated internal documents under which Co-
operatives are formed and operate should satisfy the overall aim and objectives
of their members and meet the appropriate legal, financial, taxation and
operational requirements to enable the business to function effectively. Too
often, Co-operatives are legally registered and agreements put in place before
full consideration has been given to their implications, particularly to financial
and taxation issues. Professional advice is recommended at an early stage.

Typical Contents of a Member Agreement

The parties to the agreement will be co-operative and the grower or producer. If
the producer is a partnership or a company, care must be taken to state the correct
registered name.

Specify the products to be marketed (e.g. wood chip, charcoal, fruit, meat etc)
including type, size and quality.

List all the definitions used in order to make the meaning of the agreement clear.

Membership of the Co-operative

The agreement should state that the producer must become a member of the
co-operative, and that it will terminate when the producer ceases to be a member.

States the length of notice required to terminate the agreement, when it is not
terminated for other reasons.

Gives either party the right to terminate the agreement following persistent failure
to comply with the terms of the Member Agreement by the other party.

Gives either party the right to terminate the agreement if the other is insolvent.

Consequences of Termination
Covers the responsibilities of both parties to each other at the time of termination,
including any repayments or recovery of allocations of Surpluses or Deficits to
member reserves.

Force Majeure
Protection for both the member and the organisation against exceptional weather
conditions, industrial action or any other cause outside his or its control.

Provisions for appointing a mediator or an arbitrator to resolve disputes that cannot
be settled by agreement.

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Appendix 1
Member Agreements

Specifies the extent to which the producer is committed to market the products through the organisation. This may be
expressed as a percentage of the member's production, the number of tonnes, litres, quantities of livestock, number of
markets attended etc.
Specifies the penalties to be paid if members do not deliver the products committed. These could be the payment of full
charges or the coverage of losses or damage incurred by the organisation due to the failure of members to supply.
Specification of Product
The detailed specification (type, size, quality etc.) for the committed products.

It is normally required that the member undertakes to provide information required by the co-operative to enable it to
carry out its marketing function e.g. projected deliveries, volume and time periods.
It is normally specified that the member is required to comply with production criteria imposed by the co-operative.

Allows access to the members' premises by any authorised representative of the co-operative.
Sets out who is responsible for delivery to the buyer, collection point or central facility and who is required to cover these
Quality Control
Details of the quality control procedures in place and the consequences of non-compliance. For example, it may be
required that:
5 Sub-standard products are returned to a member at his own expense, and that the member is responsible for the full
members' charges as if the product had been sold by them
5 Sub-standard products are sold at the best realistic price, but that the member still has to pay the full member charges.
Co-operative's right to impose conditions
In some cases the co-operative may be provided with the right to impose conditions on the disposal of rejected products.

It is often specified that the Co-operative is given full control for marketing of members' produce, with the proviso that
all members are treated fairly.
If the Co-operative acts as an agent for its members, the ownership of the products supplied does not pass to the
co-operative but directly to the buyer, under a contract of sale negotiated by the co-operative. This is the most
frequently-used approach.
Alternatively, if the co-operative is to buy the product and re-sell it this would be clearly stated in the regulation. This
would also affect the wording of the provisions of charges.
The agreement should clearly state where the risk lies if the product is damaged or lost when in the hands of the co-
operative or its haulier. If the risk is assumed by the co-operative, then it will need to insure against loss or damage and
civil responsibility in respect of any claim.
If the co-operative sells to an agent, it is advisable to also provide it with the authority to delegate, e.g. to a marketing
Proceeds of Sale
The co-operative may be given the authority to collect the proceeds of sale on behalf of the members in the case of an
agency agreement.

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Oxfordshire OX20 1LH
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Appendix 1
Member Agreements

Payment to Members
This will specify how members are to be paid for their produce. This could be the sale price less agreed charges, with an
indication of the number of days following receipt of payment by the organisation that the account will be settled.

Bed Debts
The policy in relation to bad debts should be stated, indicating what will be paid to members in such cases; when an
outstanding debt from a customer should be considered bad; and what action is to be taken.

Specifies the method of setting member charges (for co-operative services and the provision of facilities etc) including the
dates on which these charges are payable.
There may also be a provision to include bad debts as a cost to be included within members' charges, and therefore borne
by all members.
The method for allocating surpluses and deficits to members' reserves should also be specified.

Qualification Loans
If necessary, provision can be made for members' Qualification Loans, specifying the conditions for repayment during
membership and following termination of membership.

States how and under what circumstances the agreement may be amended.

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