MEMORANDUM SUBMITTED BY THE NATIONAL FARMERS'
UNION OF ENGLAND AND WALES (F 31)
INTRODUCTION
The NFU represents 75,000 farmers and growers,
approximately 5 per cent of whom are currently producing to recognised
UK organic standards or are in conversion. We welcome the Agriculture
Committee's inquiry into organic farming in the UK and the opportunity
to comment on issues related to the regulation, promotion and
marketing of UK organic products.
The NFU views organic production as a viable
option for some of its members and our Organic Working Group of
10 practical organic producers, representing all commodity areas,
was set up to represent the interest of members who either farm
organically or who may wish to do so. Through this Organic Working
Group, the NFU aims to focus primarily on the commercial and marketing
opportunities available to UK organic producers and to pursue
the maximum cohesion among producers to ensure the generation
of the best possible returns from the market. In addition, we
aim to ensure that UK organic producers have available to them,
equivalent policies and marketing opportunities to those of their
EU counterparts.
DEFINITION OF
ORGANIC FARMING
Organic farming is an approach to agriculture
where the aim is to create integrated, humane, environmentally
and economically sustainable agricultural production systems .
. . with maximum reliance placed on locally or farm derived renewable
resources and the management of self regulating ecological and
biological processes and interactions in order to provide acceptable
levels of crops, livestock and human nutrition, protection from
pests and diseases, and an appropriate return to the human and
other resources applied. Reliance on external inputs whether chemical
or organic is reduced as far as possible[1].
EXPANSION OF
ORGANIC FARMING
IN ALL
AGRICULTURAL SECTORS
Organic production and marketing is a growing
reality all over the world. Within the EU, likely demand for organic
products far exceed supply even though the amount of land farmed
organically across the region has grown by about a third since
1995.
Specifically, within the United Kingdom, organic
farming really began to show solid expansion in the mid 1990s
and has continued to increase at a rate of about 25 per cent per
annum since then. This expansion of organic production may be
attributed to a number of factors, including but not in any order
or priority:
consumers concerns about safety of
conventionally produced foods eg reaction to BSE, Salmonella in
eggs, E.coli poisoning etc;
producers/consumers concerns about
the impact of conventional agriculture on the environment;
introduction of genetic modification
technology;
deteriorating farm gate prices of
non-organic products;
acceptance by multiple retailers
that organics is a major product area and consequent promotion
of the products;
improved marketing and promotion
of organic farming and products;
government funded research and development
into organic farming;
government funded conversion grant
scheme.
The rising demand and subsequent production
of organic products has now edged towards self-sustaining levels
of economies of scale and lower levels of retail premiums. Further
expansion has also followed the growing ranges of products available
and the increasing variety of processed products. For example,
British sugar is currently conducting field trials of organic
sugar beet with the aim of producing substantial volumes of organic
beet sugar for use in processing of organic products.
To look more closely at each agricultural sector:
The organic livestock sector currently appears
to be experiencing the greatest expansion. This information is
supported by figures obtained from the Organic Conversion Information
Service, which indicates that the largest number of enquiries
about conversion is received from predominantly livestock farmers.
The organic dairy sector in particular has enjoyed steady expansion
over the last five years. This expansion has no doubt been helped
by the success of the marketing initiative with Sainsbury's and
the Organic Milk SuppliersCo-operative.
Unfortunately, there are no supporting data
to compare year on year conversion rates for the poultry sector.
However, information received from Organic Farmers and Grower,
the sector body that certifies up to 80 per cent of all organic
poultry producers, indicates that there is a very steady increase
in the number of poultry producers converting to organics. The
largest increase has been in the area of egg production.
The sector that has been slowest in expanding
is the cropping sector; horticulture and arable. A concern here
is that if this section of the market expands substantially, then
price premia over conventional produce will reduce sharply.
Another area that slows down the growth of the
UK horticultural sector is that related to approved pesticides
for use in organic fruit production. The UK has far stricter and
more expensive pesticide registration procedures via the Pesticide
Safety Directorate. As this is not the case in other member states,
the result is that our competitors have access to very highly
effective novel plant protection agents and so are able to increase
their competitive advantage. At the same time, UK producers are
unable to take advantage of many new technologies because it is
uneconomical for manufacturers to register the products.
Furthermore, producers in most other member
states receive substantial ongoing aid after their conversion
period ends. This effectively means that these producers will
have long-term, lower production costs in comparison to UK producers,
and so can more easily produce for export into the UK market.
UK producers are kept out of the market because they will find
it impossible to compete.
MARKET TRENDS
AND CUSTOMER
DEMAND
The market for organic foods has grown from
a retail value of £92 million in 1992 to £360 million
in 1999 and the range of products available in the market has
also increased significantly. The general trend indicates that
organic food production is now much more than just marginal volumes
of production and that the demand for organic food continues to
exceed supply. It is currently estimated that UK retail sales
are growing at a rate of 20 per cent per year. [2]
Multiple retailers now view organics as main
stream rather than as niche products and the expanding market
includes both fresh and processed products in all commodity sectors.
Opportunities for the marketing of new products
continue to present themselves, but as with conventional products;
marketing, product quality and packaging designs are key factors
to consider for each product range.
It is worth noting also, that the larger companies
with established brands are capitalising on the organic market
as well, by bringing out new product lines. In most cases, these
companies have chosen to market their organic range under entirely
new product brands. This is possibly in an effort to avoid questions
or criticisms about the quality of their existing non-organic
range.
Marketing of organic food products is also being
boosted through producer run box schemes, farmers' markets and
Internet shopping. And where domestic supplies are unavailable,
imported products are used to fill the gaps. Fresh and processed
organic products are currently being imported from all over the
world.
The levels of organic premia vary between commodities,
which may be a reflection of the balance between supply and demand
for the product. For example, cereals and vegetables are typically
marketed at 50 to 60 per cent premium over the conventional equivalents,
whereas meat and dairy products, which are more available locally,
are marketed at 15 to 20 per cent above the price of the conventional
equivalent.
Consumer demand for organic products continues
to rise. This drive towards consuming more and more organic foods
is largely in response to concerns about the safety of conventionally
produced foods. The number of high profile food scares over recent
years has caused some consumers to lose confidence in the food
supply chain. They have turned to organic foods, which they perceive
to be safer and healthier. Other factors influencing consumers'
demand for organics include; concerns about genetic modification
technology, pesticide residues in food products, use of antibiotics
and general animal welfare issues. Environmental issues are of
increasing importance and many consumers are now choosing to purchase
organic foods as a way of registering their positive support.
The increasing profile of organics in the media,
supermarkets and other consumer-focused events has helped too
to raise awareness and thus influence demand. Also, most importantly,
a gradual decrease in retail price premia either deliberately
set by retailers or as a result of increases in available volumes,
have meant that more main stream consumers are able to afford
to purchase organic products.
Overall, the future development of organic production
and consumer demand seems set to continue to rise. However, an
important constraint on the development of the sector is the difficulty
of ensuring efficient marketing that meet consumers' expectations.
Consumers are very demanding both in terms of the range and presentation
of food products and of year round availability. This however
is not compatible with the long-term sustainability of local production
and principles of organic farming.
THE ROLE
OF ORGANIC
CERTIFICATION ORGANISATIONS
EC Regulation on organic food (2092/91) requires
that each member state should have a national authority to enforce
the EU legislation for organic farming. The United Kingdom Register
of Organic Food Standards (UKROFS) is the body that has been appointed
by UK agricultural ministers to carry out this function. UKROFS
also licence and supervise private organic certification organisations
that carry out farm inspections and certifications.
There are seven approved organic certification
bodies operating in the UK. They all operate privately but are
all subject to inspections to ensure that their systems and the
standard of all their inspections conform to the EC Regulation.
In order to qualify to operate as a certification
body, the organisation needs to satisfy UKROFS requirements regarding
the adequacy of its resources in terms of staff, administrative
and technical facilities. Certification organisations are also
required to comply with the requirements of EN45011 or ISO 64.
Once a certification organisation is approved,
they must undergo a programme of examination by UKROFS to ensure
that their farm inspections are objective and effective and that
their interpretation and enforcement of the UKROFS standards is
satisfactory.
Organic Certification Organisations have played
a very important role in the development of the organic sector.
They have been very effective in defining standards for production,
processing and direct marketing. In addition, they have helped
to raise consumers' awareness and confidence in organic foods
and in so doing contributed to the overall development of the
market.
There are however, some areas of concern regarding
the operating of certification bodies:
(i) The UKROFS licensed certification organisations
are basically similar in their interpretation and implementation
of the UKROFS standards but ideally, the NFU would prefer to see
a single UK organic standard being implemented by all the certification
bodies. We feel that all the bodies should adopt the UKROFS standard,
which is the UK interpretation of the EU Regulation. The NFU recommends
the establishment of a properly funded mechanism by which UKROFS
and all relevant organisations can continuously develop, review
and co-ordinate organic standards and their implementation.
(ii) Variations occur in the interpretation
of standards between different EU member states, and this causes
producers and consumers great concerns. Added to this is the fact
that producers suspect that many of the imported products, even
those from approved third countries, are not produced to the same
rigorous standards that apply in the UK. The NFU would recommend
the urgent formation of a transparent, inclusive "equivalence
procedure" for the sector.
(iii) There are generally long administrative
delays in the certification process, which occur as a direct result
of uncertainty regarding the erratic delivery of government organic
aid.
THE SETTING
OF ORGANIC
STANDARDS AND
TOLERANCES
Prior to the establishment of EU Regulation
2092/91 for organic crop production in 1993, the national regulatory
organisation in each member state was responsible for setting
standards for the production and processing of organic products.
The current situation is that the EU Commission
now sets the standards for the production/processing of organic
products. Standards for crops and crop-based products have been
implemented since 1993, whereas the EU livestock standards were
only finalised in July 1999. The UK interpretation is due to be
implemented in August 2000.
The strict EU Regulation is generally taken
as the basic standard, applicable across all member states. However,
there are areas of both the crop based and now the livestock based
regulations that allow national discretion over the adoption of
various derogations which could potentially lead to differences
in standards implemented nationally. To further complicate the
issue, the Regulation also allow national regulatory bodies and/or
private certification bodies to implement standards that are more
restrictive than the basic EU standards.
The result of this is that a plethora of organic
production standards now exists, both within the UK and across
member states, which is extremely confusing to consumers and frustrating
for producers.
As pointed out above, the NFU would like to
support a move toward the implementation of a single UK standard,
used by all the certification organisations.
With respect to production of perennial crops
in particular, the NFU believes that there is an urgent need within
the UK for a review of the standards, in order to re-evaluate
the allowable inputs and their effects on the wider environment
and ecology. Possible consideration should also be given to working
with other member states to produce standards that are specific
to perennial crops (as is currently being investigated for protected
cropping).
Tolerances
Tolerances within the standards and consequent
inspections of farms and processing facilities can lead to some
problems. Most inspectors however, are wholly reasonable in their
interpretation during inspection visits but special circumstances
in a few cases have led to the cancellation of producers' organic
certificates.
THE ROLE
OF FARM
ASSURANCE
Farm Assurance is a system that seeks to ensure
that customers and final consumers have confidence in British
farm products. Farm assurance schemes were set up in each sector,
in response to consumers' concerns about specific issues related
to the safety of UK farm products. This is following a number
of high profile food safety cases (eg BSE and Salmonella in eggs),
that have had the effect of diminishing consumers' confidence
in the integrity of producers' on-farm activities.
Farm assurance schemes require producers to
demonstrate that products are produced, handled, stored and delivered
in a manner that complies with all legal and voluntary codes of
good practice. The standards are established by industry-wide
representatives groups in each commodity sector and cover issues
related to food safety, product traceability, pesticide residue
in produce, use of antibiotics, storage, transportation, animal
welfare as well as a response to environmental concerns.
In all sectors, an independent registrar runs
the scheme and regular on-farm inspections are carried out by
independent verifiers.
Though the schemes are designed and implemented
by industry groups in each sector, they operate as totally voluntary
schemes and producers therefore make their own decisions about
whether or not to join. The number of producers that are registered
with the various schemes however, is relatively high because many
retailers and customers have tended to make scheme membership
a condition of supply.
The NFU has been very much involved in the development
and implementation of the schemes and we fully support and endorse
the concept.
Farm Assurance and Organics
Farm assurance schemes operate totally independently
of organic certification and though the standards in some cases
are designed to achieve similar objectives, the two systems are
quite different in other areas.
For example, both farm assurance and organics
have objectives that are designed to achieve high food safety
standards, product traceability, reduction in pesticides usage,
high animal welfare, response to environmental concerns and other
positive aspects.
A significant difference between the two is
the fact that the farm assurance schemes have independent verifiers
to check producers' compliance with scheme standards whereas organic
farms are inspected by their certification bodies. As farm assurance
grows, the advantage of a single inspection by UKAS accredited
inspection body should be investigated.
THE AVAILABILITY
AND SUITABILITY
OF PUBLIC
AND PRIVATE
ASSISTANCE FOR
ORGANIC CONVERSION
(i) Public assistance for conversion
With organic farming increasingly being accepted
by producers and policy makers as a viable form of production,
it is now being regarded as a model for social, environmental
and financial sustainability in agriculture. Because of this,
the uptake in conversion has increased dramatically over recent
years. Growth of the sector has been estimated at 20 per cent
increase per annum since 1996. Although the levels of inquiry
appear to be levelling off or even dropping.
The increase in organic production has partly
been achieved as a result of the EU application of policies to
support organic conversion and farming as part of the agri-environment
programme, EC Regulation 2078/92. This Regulation was implemented
in 1993 and provided the financial basis on which to support conversion
and maintenance.
Other EU policy measures through which organic
farmers have received assistance include support for:
marketing, processing and producer
groups;
advise programme initiatives;
training activities; and
research and development.
Specific to the UK, there have been two main
public funded schemes providing financial assistance to producers
during the conversion period. The first of these initiatives was
the Organic Aid Scheme (OAS); under which producers were offered
a basic rate of payment, irrespective of farm type. The level
of grant aid offered under this scheme was the absolute lowest
when compared against similar conversion grant aid offered to
producers in other member states. Needless to say that during
this period ie up to 1998, the UK had the lowest rate of expansion
of its organic sector. Following a 1998 review of the OAS, the
UK's second programme of assistance was introduced. It was called
the Organic Farming Scheme (OFS) and offered grants of up to £450/ha,
ie twice that paid under the OAS. Consequently there was a rapid
increase in the uptake of the grant with the resulting expansion
of the UK organic supply base. Unfortunately, after only four
months of operation, the scheme ran out of funds and was closed
for a review and consultation with the organic sector. The objective
of the MAFF review is to identify a more effective means of administering
the limited financial resources available to support conversion.
The scheme is expected to be reopened in April 2001.
The conversion grants available under the OFS
were very inadequate with respect to the amounts of aid paid to
producers indifferent commodity sectors. For example, in the horticultural
sector, conversion of an orchard of conference pears (typically
suitable organic variety will cost approximately £10,000/ha
over the three years conversion period. Compare this against the
conversion grant of £450/ha paid over a five year period.
It is no surprise therefore that 80 per cent of the horticultural
products and over 90 per cent of tree fruits consumed in the UK
are imported. While some of this produce could not be produced
in the UK because of climatic conditions, there is still great
potential for increase in the UK production of organic fruits
and vegetables. This matter is addressed in some member states
by offering higher rates of conversion aid to horticultural producers,
particularly to growers of perennial fruit crops.
Another area of public assistance for conversion
has been the Organic Conversion Information Service, through which
producers are offered a free one and a half days conversion advisory
visit on their farms.
Unless significant changes to the public support
system are made, imports will continue to supply the bulk of our
organic market, particularly as producers in other member states
are better supported during conversion and perhaps for a longer
period afterwards. This has the obvious effect of enabling those
in receipt of this support, to be able to market their products
at much lower prices than UK producers.
The NFU believes that the government should
structure the conversion grant scheme so that the rates of aid
offered to producers are tailored to better meet the financial
needs and market demand of the commodity sector to which the producers
belong. It is our view that this is one way of encouraging expansion
of organic production in target commodity areas. In addition,
where flat rates of conversion grants have been offered in the
past this has led to conversion of large areas of unimproved uplands
with minimal environmental gains or benefits to the organic sector.
We wish to point out as well, that most other
member states actually offer their organic producers funding in
the post-conversion period, which is not available to UK producers.
It is our view therefore, that much more attention
needs to be paid to the environmental management of organic farms
than is at present the case. This should be recognised by the
government and compensated for via an organic stewardship scheme,
which should take into account the farm size and the level of
environmental benefits delivered.
(ii) Private assistance for conversion
Each sector is very different with respect to
the conversion assistance provided by the commercial sector. Assistance
is generally in the form of advisory services or direct grant
aid to assist farmers to convert.
Regarding advisory services, farmers glean a
significant amount of knowledge through contact with other organic
farmers, either via demonstration farm visits or discussion groups.
Some commercial groups have developed this practice into a more
organised form of advisory facility; harnessing an experienced
farmer and then linking him/her with a group of 10 to 20 producers
who are in conversion. The Organic Milk Suppliers Co-operative
has developed an effective model for this, with the objective
of ensuring that farmers entering conversion and signing a contract
to deliver organic milk are able to do so as confidently as possible.
Conversion advice may also be obtained from
private consultants. Both Elm Farm Research Centre and Henry Doubleday
Research Association offer this service and both organisations
have recently expanded to be able to meet the rise in demand for
their services.
Within the dairy sector, the milk marketing
company, Axis Milk, is providing dairy farmers with interest free
loans, to help them through the process of conversion. In addition,
once farmers have converted, they are offered guaranteed premium
prices fixed for six months.
Wessex Water Company is also running an Organic
Incentive Scheme whereby farmers are offered a £40/ha incentive
payable over two years. In return for this, the farmer must convert
his/her entire farm to organics over a five year period and he/she
is also required to comply with a management agreement for reducing
nitrate pollution.
Increasingly more retailers and private organisations
are proposing to introduce conversion incentive schemes. The bottom
line however, is that there are not enough of these schemes and
the level of grant aid being offered is grossly inadequate.
OUTLETS AND
DISTRIBUTION SYSTEM
FOR ORGANIC
PRODUCE AND
RETAIL PRICING
There are predominantly three routes whereby
consumers can source organic products. These are via multiple
retailers, independent retailers/health food stores and direct
delivery network. Farmers markets have begun to play a role but
are probably still not a major organic outlet.
In the UK, up to 67 per cent of all organic
products are sold through the multiple retailers, which have been
mostly responsible for the main push of organic products through
the system. The supermarkets have introduced a number of measures
that have served to drive the organic retail business forward.
These measures include:
entering long term contracts with
suppliers eg Sainsbury's with Milk Co-operative;
encouraging and assisting farmers
to convert to organics eg Asda in meat sector;
funding of organic research and development
projects eg Tesco and Waitrose in produce sector;
extensive advertising and marketing
campaigns eg Sainsbury's and Waitrose;
developing in-store marketing including
dedicated shelf spaceall multiples;
developing private label range of
products eg Asda; and
traceability facilitationall
multiples.
The range of products available in supermarkets
cover mainly fresh produce and dairy products, however, significant
growth in areas of grocery, baby foods and ready meals has been
achieved over recent months. A full range of organic meats and
meat products is still not yet available through the multiple
retailers.
The second largest outlet for organic products
is the independent retailers/health food stores, which retails
18 per cent of all organic products.
Farm shops, local marketing initiatives and
farmers markets together retail 15 per cent of all organic sales.
These direct marketing schemes are based on the concept of "local
food for local people". This concept offers direct benefits
to producers, consumers and the local community. Producer benefits
come from the fact that the shorter supply chain means increased
margins whereas for the consumers, the benefits include locally
produced, fresh products at affordable prices.
The key factors for each of the three main outlets
are transport and scale, which also affect the final retail price
of the products.
When markets are small, the costs of processing
and distribution become proportionately greater in relation to
mainstream products. Furthermore, the often erratic and unplanned
purchasing and production patterns lead to greater wastage at
the retail end, thus exaggerating the cost of organic food. As
scale of production and consumption rise to key critical mass
levels, the losses will be reduced or removed altogether, thus
creating the potential for cheaper organic food for consumers
with little or no producer premia.
Losses in the organic supply chain are generally
at considerable cost. Some processors and retailers are attempting
to sell organic produce to identical specifications as for the
conventional equivalents. This is almost guaranteed to cause great
wastage, in the processing stages of produce that are of sound
nutritional status, simply because these products do not measure
up with respect to cosmetic specification as compared to the conventional
products.
Even though these various market outlets do
exist, the responsibility still rests with organic producers to
find and develop them. Indications however, are that the market
is growing very quickly but is grossly under-supplied with UK
produced organic products. In addition, there are many opportunities
for co-operatives and other farmer-controlled businesses to flourish
in the marketplace.
In summary, the NFU would emphasise the point
that there are far more economic benefits yet to be delivered
in the processing and retail chain, but these are only deliverable
when we have more retail volume sales and products to sell. The
ultimate essential ingredient is partnership. There must be acceptable
margins for everyone in the chain. Critically, if farmers are
unable to make an adequate return on capitalboth working
and fixed capitalthen they will be most unlikely to continue
farming organically. The most common barrier to entry into the
market is fear of oversupply and lack of committed long-term support
from government.
Retail Pricing
Many people consider that all organic produce
is more expensive than conventional produce. This is not necessarily
true in all cases eg some brands or organic yoghurts are retailed
at almost the same price as the conventional equivalent.
There is bound to be some element of retail
premium for most organic products and this is most evident when
we consider the wider benefits of organic production. For many,
the benefits to the rural economy and ecology that organic farming
delivers justifies the organic premium prices. The consumer is
paying not just for the reduced yields that organic systems deliver,
but for the true cost of food production. Much needed employment
is also being created in depressed rural areas.
The NFU wishes to emphasise that organic farming
is NOT simply pesticide free farming. It is an essential part
of the sustainable management of all rural assets including the
community (right down to the village shop/school/post office),
all rural business including farming and the whole rural ecology.
It would also include the management of an integrated transport
policy.
THE LEVEL
OF IMPORTS
AND EXPORTS
OF ORGANIC
FOODS
The UK consumer would not be able to get enough
of the organic food they want if the market depended solely on
UK production. This imports are currently strategically crucial
to market supply and development but this is not a desirable long-term
situation, as it is a direct contradiction of sustainable agriculture.
UK consumers would prefer to buy UK produced food. Although we
know that we cannot produce many lines that consumers now seek,
we are aware that we could do much more than we currently do.
Imports have been strategically valuable in developing the market
from its infancy, given that production cannot be easily started
or switched due to the time scale for conversion, the need for
sound agriculture rotations and respect for what each soil type
will produce.
We need to be aware of the demand profiles and
determine whether we are prepared to invest in home production
or continue our dependence on imports. If we are to choose the
latter, then we need to be absolutely assured that the standards
of production and/or processing are equivalent to those expected
of UK producers and processors. The infamous level playing field
is crucial if the UK is to meet the expectations of farmers and
consumers. We must not have dual standards and thus unmatchable
competition. The effects of currency variations are bad enough
without other barriers being raised.
General figures indicate that up to 70 per cent
of all organic foods sold in the UK is imported. The Soil Association's
Food and Farming Report 1999, suggests that for the fruits and
vegetables sector, as much as 80 per cent is imported, for cereals
the amount is 70 per cent and within the processed dairy sector
only60 per cent of the products are produced in the UK. The amount
of organic meats and eggs for human consumption that are imported
during the period surveyed was negligible, but cereal required
for supplementary pig and poultry feed should be noted.
INTERNATIONAL COMPARISONS
The NFU is unable to provide significant evidence
regarding international comparisons, but there is anecdotal evidence
which is often cited, and some areas of which have been mentioned
earlier. These include variations of organic standards, financial
assistance from Governments and associated bodies plus greater
development budgets. There may be some countries where support
for organic farmers is less than the UK but they are unlikely
to be European or North American and thus there is no value in
stretching comparisons further.
The NFU therefore urges the Government to be
mindful that other factors significantly affect competitiveness.
These will include general regulations, costs absorbed by Governments,
cheaper fuel, cheaper and more plentiful/available labour etc.
We are most definitely not seeking financial
help from Government to correct every financial difference, but
we are seeking active assistance to:
(a) support the certifying organisations
in the maintenance of the integrity of organic production systems;
(b) support attempts to clarify UK standards
and to ensure that farm inspection procedures are as uncomplicated
and undisruptive as possible;
(c) ensure that UK farmers achieve the fullest
assistance to enable their products to be marketed as locally
as possible and with minimum transportation and handling costs,
whilst at all times, taking great care to preserve existing local
market initiatives;
(d) support attempts to clarify the international
variations in production and processing standards etc.
12 June 2000
1 Nic Lampkin; Welsh Organic Food Sector Strategy
Plan. Back
2 Soil Association Food and Farming Report 1999. Back
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