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European union's common agricultural policy: evolution, objectives, challenges and future perspectives.

EU agricultural policy is a constantly evolving policy. In the earliest days of the European Community, 57 years ago, the emphasis was on providing enough food for a Europe emerging from a decade of war-induced shortages, subsidizing production on a large scale and buying up surpluses in the interests of food security. In present times, the focus of EU agricultural policy is to get food producers (of all forms of food from crops and livestock to fruit and vegetables, or wine) to be able to stand on their own feet on EU and world markets.

In the beginning, the common agricultural policy (CAP) was based on three principles: a single market, Community preference and financial solidarity between the Member States of the Community. This framework offered farmers guaranteed prices for their produce, protected them against competition from imported products and subsidized exports. It also had the beneficial effect of strongly boosting agricultural production and giving the Community self-sufficiency as regards food. With time, however, disadvantages became apparent because guaranteed prices led to overproduction, subsidized exports and the accumulation of stocks financed by the Community budget (1). This situation benefited, above all, bigger farms, while farm incomes remained, on average, lower than in other sectors.

Agriculture represents a sensitive sector to which public authorities gave a special attention in all countries for social and electoral reasons. Therefore, since the beginning of 50's, a European arrangement of goods was planned but this project was not accomplished because of interest divergences. The perspectives of developing a Common Market resumed this debate coming to the decision that this field of activity should be the subject of the Treaty of Rome of March 1957. There have been established five essential objectives for Common Agricultural Policy (CAP): improving productivity in the agricultural sector; ensuring a reasonable standard of living for the producers; stabilizing foreign exchange by supplying agricultural products for domestic consumption from domestic sources rather than imports; ensuring the security of supply; stabilizing prices at levels reasonable for the consumer (2).

The content of the Treaty of Rome gave only the general direction to be followed in this field, the Commission having the function to submit to the Council proposals regarding the markets common organization on the basis of the work of a member states' Conference. It led to the Stressa (Italy) Reunion of July 1958 where the principal directions were set (3). In January 1962, a team of experts conducted by Sico Mansholt (ex-minister of Dutch agriculture) laid the foundations of PAC after long and difficult negotiations. The Mansholt Plan proposed an ensemble of measures that basically represented the guidance aspects of the CAP: a first set of measures concerned the structure of the agricultural production, aiming to bring about an appropriate reduction in the number of persons employed in the agricultural sector and to create agricultural enterprises (farms) of adequate economic dimensions; a second group of measures were concentrated upon markets, with the double purpose of improving the way they worked and of adjusting supply more closely to demand; the last set of measures were meant for providing personal assistance to farmers which were unable to benefit from these measures (this assistance should be payable within specified limits defined in the light of regional factors and the age of the persons concerned) (4). The aim of the Plan was to encourage nearly five million farmers to give up farming. That would make it possible to redistribute their land and increase the size of the remaining family farms. Farms were considered viable if they could guarantee for their owners an average annual income comparable to that of all the other workers in the region. In addition to vocational training measures, Mansholt also provided for welfare programmes to cover retraining and early retirement. Finally, he called on the Member States to limit direct aid to unprofitable farms.

The reaction of the agricultural community was too aggressive so that Sicco Mansholt was soon forced to reduce the scope of some of his proposals. Ultimately, the Mansholt Plan was reduced to just three European directives which, in 1972, concerned the modernization of agricultural holdings, the abandonment of farming and the training of farmers. The three directives issued in April 1972 by the Council are: Directive no. 72/159 which allowed member nations to support their farmers' modernization through grants or subsidized interest rates on the condition that these farms were capable of generating income levels comparable with those of other local occupations; Directive no. 72/160 which permitted member states to extend lump-sum payments or annuities to farm workers aged between 55 and 65 years to lure them into leaving the industry; Directive no. 72/161 that aimed at encouraging member states to establish socio-economic guidance services to entice farm workers to retrain and relocate. The precise method of implementation of these directives was left to the discretion of national governments.

The 1980s was the decade that saw the first true reforms of the CAP, foreshadowing further development from 1991 onwards. In 1991, the MacSharry reforms (named after the European Commissioner for agriculture, Ray MacSharry) were created to limit rising production, while at the same time adjusting to the trend toward a more free agricultural market. The reforms reduced levels of support by 29% for cereals and 15% for beef. They also created "set-aside" payments to withdraw land from production, payments to limit stocking levels, and introduced measures to encourage retirement and forestation. Since the MacSharry reforms, cereal prices have been closer to the equilibrium level, there is greater transparency in costs of agricultural support and the "de-coupling" of income support from production support has begun. However, the administrative complexity involved invites fraud, and the associated problems of the CAP are far from being corrected. It is worth noting that one of the factors behind the 1991 reforms was the need to reach agreement with the EU's external trade partners at the Uruguay round of the General Agreement on Tariffs and Trade (GATT) talks with regards to agricultural subsidies (5).

The "Agenda 2000" reforms divided the CAP into two Pillars: production support and rural development. Several rural development measures were introduced including diversification, setting up producer groups and support for young farmers. Agricultural-environmental schemes became compulsory for every Member State (6).

Having in view the fact that in member states the situation had characteristics which had to be taken into account by the public authorities (numerous and small dimensions exploitations, low productivity, an important part of the active population being engaged in the primary sector, average income per inhabitant being inferior to those from other fields of activity, the production being often unable to satisfy food necessities) and the authorities had to act with a view to orientating the development and modernization of the structures, but also to regulating markets and ensuring incomes to the farmers, CAP took inspiration from practices and models of organization available in France and Holland and replaced national mechanisms with a community device.

The adopted system was based on a series of principles (7):

a. free movement of agricultural goods; by removing customs taxes and subventions and progressively adopting administrative, sanitary and veterinary norms, a unique space was created;

b. a common organization of market which substituted for national systems; the price for each product is only one and surpasses world price (in order to ensure a reasonable income for the producer) inside the EEC;

c. preference for community goods; the consumption of products from Europe was promoted in comparison with that one of goods from outside the Union (the entrance to the community market of exterior products is discouraged by imposing prohibitive taxes);

d. financial solidarity; guaranteed prices, export of surplus goods etc. which are registered in the European Orientation and Agricultural Guarantee Fund, created in 1962.

The six main mechanisms of CAP are:

* Price support: guarantees minimum prices set by agricultural ministers;

* Import taxes: to ensure external prices cannot undercut internal EU prices;

* Intervention: support by selling or storing surpluses;

* Stock disposal: to dispose of surpluses by other means (e.g. Free Food Scheme);

* Subsidized exports (that results in the "dumping" of surplus produce causing a destabilizing of prices in third countries);

* Production control: quotas (e.g. on milk) and "set aside" (refers to land).

Prices are established annually and uniformly for every product by the Council of Ministers of Agriculture, at the Commission proposal. Their fixing implies long negotiations and the system adopted (the mechanism of guaranteed prices) presents common characteristics, although it is differentiated on sectors: an orienting price which serves as theoretical reference; a floor price which is applied to imports at the entrance to EEC (in order to protect European production); a intervention price proper to a minimum guaranteed level (at which all legal organisms buy the surplus products in order to store or to destroy them) (8).

Every year, beginning with April 1st, a common standard comes into force which is established depending on a series of parameters: the objective followed in the field of incomes, costs evolution and the level of EEC goods supply. The absolute guarantee of prices is applied only to certain products such as wheat, but there are different degrees of protection depending on market organization for other goods (sugar, olive oil, rice, milk, beef etc.).

In the course of time, the Community effort materialized in special allowances for mountain regions, environment, disadvantaged regions and also in financing some investments in some regions of South Europe and Ireland. CAP enabled the radical transformation of agriculture and its integration into the market economy, but the "productivist" model which inspired it knew also negative effects that led to hardly tolerable costs.

From the beginning, the establishment of CAP has experienced technical difficulties and, little by little, led to basic lack of balances. From the beginning of 80's, the finding of provisional solutions for limiting the lack of balance was vital. Due to the persistence of this situation and at the intervention of GATT, in 1992 the CAP was globally reexamined and starting with 2000 important changes has been applied. Between 1986-1993 agriculture represented one of the essential fields of negotiations (Uruguay Round) which had in view a more intense liberalization of world trade of goods and services, limiting customs taxes and fighting against measures not concerning tariff (9). The reform which came into force in May 1992 was inspired by the proposals made by the Commission in the Green Paper in July 1985. The progressive drop in prices of surplus products with the aim of discouraging production, the obligatory annual abandonment of a part of cultivated field and the application of strategies of rural development with the aim of protecting environment are only some of the principles of the new orientations.

The Reform of CAP (influenced by GATT) ensures a balance on medium term between the mechanisms of Green Europe and the exactingness of international enlargement. At the beginning of the third millennium, new negotiations inside World Trade Organization (WTO which replaced GATT starting with 1995) are expected. The Council from Berlin (March 1999) made the decision to diminish the support prices and to reevaluate direct aids in order to maintain the incomes. The ministry Conference of Seattle, in December 1999 decided to cover agriculture multifunctionality, in other words the productive activity and, at the same time, environment protection (10).

In 2003, a new basic reform was made according to which CAP was adapted to the demand. The reform has completely changed the way the EU supports its farm sector. The agricultural producers are no more paid only to produce food products. The preoccupations of consumers and contributors are entirely taken into consideration while the freedom of producing what was in demand on the market was granted to the farming producers coming from EU. The vast majority of subsidies were to be paid independently from the volume of production. This new reform emphasized the importance of environmental, quality or animal welfare programs by reducing direct payments for bigger farms; more money will be available to farmers for this aim. The Council further decided to revise the milk, rice, cereals, durum wheat, dried fodder and nut sectors. In order to respect the tight budgetary ceiling for the EU-25 until 2013, ministers agreed to introduce a financial discipline mechanism. This reform will also strengthen the EU's negotiating hand in the ongoing WTO trade talks. The different elements of the reform came into force in 2004 and 2005. The single farm payment came into force in 2005.

With regard to the implementation of the reform, the Commission has chosen to do this through the agency of three Commission Regulations. First Regulation covers the provisions concerning cross-compliance, controls and modulation. The provisions with regard to cross compliance are one of the new key elements in the CAP reform, which make the future Single Farm Payment dependant on the farmers respecting public health, animal health, environmental and animal welfare, EU norms and good agricultural practice. Second Regulation embodies the key element in the reform of introducing a Single Farm Payment, where the payment will no longer be linked to production (decoupling), allowing the farmers to have their incomes ensured and steering their production towards the needs of the markets and the demands of the consumers. Payments will, however, only be paid in full if the above cross-compliance provisions are respected. At the same time decoupled payments will mean that a major share of our support to agriculture is moved from the trade distorting classification under WTO rules (Amber Box) towards the minimal or non-trade distorting category (Green Box). The third regulation covers those areas of support, which in the future are still product specific, or where the Member States have the option to retain a certain element of support coupled in the future. Such possibilities have in particular been foreseen in the area of animal premia (beef and sheep), where the concern with regard to the effect on production and decoupling has been most pronounced.

There were and still are many controversies concerning CAP. The CAP has been criticized for its large budget and for supporting inefficient agricultural practices. The 1990s reforms are accused of so far having done little to reduce its cost, and of leaving agricultural prices unnecessarily high at the expense of the consumer. By encouraging overproduction, the CAP forced the EU to buy up the surplus of production, which it was then sold on cheaply in the developing world--undercutting local producers and damaging local economies. "Dumping" of this sort, combined with high external tariffs for food imports, led to considerable international criticism of the CAP, notably at the Doha World Trade Organization talks in 2003 (11). Attempts to reduce overproduction by paying farmers to "set aside" land are thought to have mitigated but not eliminated the problem. Set aside also risked distorting the public's perception of farmers--who the public thought were being paid to do nothing. Furthermore, by encouraging farm "modernization", the CAP was blamed for environmental damage caused by the increase of agricultural chemicals and intensive farming methods. Some have blamed the CAP for the practices that led to a series of food safety scares during the 1980s and 1990s, chief among them being BSE.

It was also claimed that the distribution of funds under the CAP was unfair --with some 20 per cent of farms, primarily the larger ones, receiving 70 per cent of the subsidies. There have also been reports of CAP fraud in some member states, where levels of diligence to prevent fraud reflect different levels of effectiveness from different member states' agriculture ministries.

EU enlargement poses a serious challenge to the CAP: the economies of some of the accession states which joined in 2004-notably the largest, Poland--are heavily agrarian. The massive cost of including these new states in prevailing CAP terms led to France and Germany developing a deal to freeze CAP spending between 2006 and 2013, and phasing in payments to the new members, in 2002. The accession states were outraged, and successfully secured additional payments, in spite of the Berlin Council's commitment to stabilize CAP spending.

However, the CAP has contributed to an improvement in European agricultural efficiency by promoting modernization and rationalization. Average agricultural incomes have risen roughly in line with other sectors, markets have been stabilized, and the EU has been rendered virtually self-sufficient in all foodstuffs that its climate permits to be cultivated.

In September 2007 a consultation process was launched by the European Commission on the Budget Review to be proposed in 2008/9. All interested parties at local, regional, national and European levels were invited to participate. And in May 2008 proposals were put forward to modernize and simplify the CAP in an attempt by the EU to mitigate the effects of global food prices. From a statistical point of view (12), real agricultural income per worker in EU 27 rose by 5.4% in 2007 after increasing by 3.3% in 2006. This growth in EU27 real agricultural income in 2007 was itself the result of:

--an increase in output of agriculture at basic prices in real terms (+4.3%);

--a rise in input costs (+5.8%) and a slight decrease in depreciation (-0.3%), in real terms;

--a decrease in the real value of subsidies net of taxes (-2.8%).

In the course of time, the focus of agricultural support has changed: until 1992, EU policy aimed to guaranteed high prices for growers' produce; between 1992 and 2004, direct aid payments linked subsidies to production; from 2005 onwards, subsidies were not paid for producing but for meeting environmental standards with regard to arable land (13).

The growing needs of the EU population made that the objective of the CAP changed too. One of the new directions of CAP is spending the money where it is most needed. Financial safety nets are still in place, but are used much more selectively. The common agricultural policy (CAP) steps in, for example, with financial support for farmers hit by natural disasters or outbreaks of animal diseases, such as foot-and-mouth or bluetongue. Where necessary, the CAP supplements farm income to ensure that farmers make a decent living. However, assistance is linked to compliance with broader objectives in the areas of farm hygiene and food safety, animal health and welfare, preservation of traditional rural landscapes, and bird and wildlife conservation.

Another new provocation for CAP is meeting new needs. The reforms have freed funds to promote quality--and internationally competitive--foodstuffs and innovation in farming and food processing. Consumers have become much more quality-conscious, so voluntary EU labels allow producers to differentiate their foodstuffs from the competition. There are labels--and underlying standards--for foodstuffs coming entirely from one area and using recognized know-how, foods with a clear geographic tie to a particular area, foods made of traditional ingredients or using traditional methods, and for organic foods. The reforms have also released money to promote rural development, including diversification of rural economies, since farm employment is no longer the mainstay of rural communities that it once was. EU research budgets further support innovation in agriculture through projects to increase productivity while at the same time becoming more environmentally friendly. This includes looking at how agricultural crops can be used to produce energy without detracting from the primary purpose of producing food and animal feed, e.g. by using byproducts and waste products.

The policy reforms have also been in the interests of fairer world trade. They have reduced the risk that EU subsidies for exports of surplus production will distort world markets. In the so-called Doha Round of international trade liberalization talks, the EU has offered to eliminate export subsidies altogether by 2013 if other countries make matching concessions. Even if the talks fail, this will not necessarily deter the EU. The European Commission is proposing that export subsidies be phased out because they do not fit with the competitive mindset which it seeks to foster. As part of the Doha Round, the EU has also offered a significant reduction in import duties on agricultural products. However, even without these, the EU is already the world's largest importer of food and the biggest market for Third World foodstuffs as a result of trade and agricultural policy reforms over the last five decades.

The most recent development is a "health check" of agricultural policy launched in late 2007. This does not imply that the policy is sick; it is a chance to see whether adjustments are needed in the light of experience since major reforms in 2003 and to ensure the policy is fit for new challenges and opportunities, such as climate change. It is not a major reform, but an effort to streamline and modernize the policy still further. Reforms notwithstanding, the common agricultural policy is the most integrated of all EU policies. Consequently, it takes a large share of the EU budget. Nevertheless, this has dropped from a peak of nearly 70% of the EU budget in the 1970s to 34% over the 20072013 period. This reflects expansion of the EU's other responsibilities, cost savings from reforms and a shift to spending more on rural development. Rural development will take 11% of the budget over the same period.

Rural Development Policy

The European Union has an active rural development policy because this helps us to achieve valuable goals for our countryside and for the people who live and work there. The EU's rural areas are a vital part of its physical make-up and its identity. According to a standard definition, more than 91 % of the territory of the EU is "rural", and this area is home to more than 56 % of the EU's population. Furthermore, the EU's fantastic range of striking and beautiful landscapes are among the things that give it its character--from mountains to steppe, from great forests to rolling fields.

With over 56 % of the population in the 27 Member States of the European Union (EU) living in rural areas, which cover 91 % of the territory, rural development is a vitally important policy area. Farming and forestry remain crucial for land use and the management of natural resources in the EU's rural areas, and as a platform for economic diversification in rural communities. The strengthening of EU rural development policy is, therefore, an overall EU priority.

Many of European rural areas face significant challenges. Some of farming and forestry businesses still need to build their competitiveness. More generally, average income per head is lower in rural regions than in towns and cities, while the skills base is narrower and the service sector is less developed. This means that the EU's Lisbon Strategy for jobs and growth, and its Goteborg Strategy for sustainable development, are just as relevant to countryside as to towns and cities.

A new policy for rural development was introduced as the second pillar of the EU Common Agricultural Policy in the framework of Agenda 2000 in March 1999. Agenda 2000 reformed the CAP in view of the expected enlargement to largely rural countries, such as Poland, Bulgaria or Romania. The EU proposes reinforced rural development measures, as support for semi-subsistence farms, for the candidate countries, so that they can reap the benefit of the Common Agricultural Policy even before they meet the EU production standards. While Central and East European countries are only offered 25-35 per cent direct payments from the CAP budget from 2004 to 2006, reaching 100 per cent in 2013, the new members will receive higher rural development subsidies which will help them stabilize farm incomes.

The main aims of the new EU rural development policy are:

a) to improve agricultural holdings,

b) to guarantee the safety and quality of foodstuffs,

c) to ensure fair and stable incomes for farmers,

d) to ensure that environmental issues are taken into account,

e) to develop complementary and alternative activities that generate employment, with a view to slowing the depopulation of the countryside and strengthening the economic and social fabric of rural areas,

f) to improve living and working conditions and promote equal opportunities. Between 4,300 and 4,370 million euro

were allocated each year to rural development during the period 2000-2006. These measures were financed by the EAGGF Guarantee Section or Guidance Section. The following rural development measures are supported by the EAGGF: early retirement (14), less-favored areas, agri-environment measures, afforestation of farmland, renovation and development of villages, protection and conservation of rural heritage, diversification of farm activities, improvement of infrastructure.

Theoretically, individual EU Member States could decide and operate completely independent rural development policies. However, this approach would work poorly in practice. Not all countries in the EU would be able to afford the policy which they needed. Moreover, many of the issues addressed through rural development policy do not divide up neatly at national or regional boundaries, but affect people further a field (for example, pollution crosses borders all too easily; and more generally, environmental sustainability has become a European and international concern). Also, rural development policy has links to a number of other policies set at EU level. Therefore, the EU has a common rural development policy, which nonetheless places considerable control in the hands of individual Member States and regions. Also, caring for the rural environment often carries a financial cost. The policy is funded partly from the central EU budget and partly from individual Member States' national or regional budgets.

The essential rules governing rural development policy for the period 2007 to 2013, as well as the policy measures available to Member States and regions, are set out in Council Regulation (EC) no. 1698/2005. Under this Regulation, rural development policy for 2007 to 2013 is focused on three themes (known as "thematic axes"). These are:

--improving the competitiveness of the agricultural and forestry sector;

--improving the environment and the countryside;

--improving the quality of life in rural areas and encouraging diversification of the rural economy.

To help ensure a balanced approach to policy, Member States and regions are obliged to spread their rural development funding between all three of these thematic axes.

A further requirement is that some of the funding must support projects based on experience with the Leader Community Initiatives. The "Leader approach" to rural development involves highly individual projects designed and executed by local partnerships to address specific local problems.

As before 2007, every Member State (or region, in cases where powers are delegated to regional level) must set out a rural development programme, which specifies what funding will be spent on which measures in the period 2007 to 2013.

A new feature for 2007 to 2013 is a greater emphasis on coherent strategy for rural development across the EU as a whole. This is being achieved through the use of National Strategy Plans which must be based on EU Strategic Guidelines. This approach should help to:

--identify the areas where the use of EU support for rural development adds the most value at EU level;

--make the link with the main EU priorities (for example, those set out under the Lisbon and Goteborg agendas);

--ensure consistency with other EU policies, in particular those for economic cohesion and the environment;

--assist the implementation of the new market-oriented CAP and the necessary restructuring it will entail in the old and new Member States.

Under the Rural Development policy, which is an integrated part of the CAP, the European Union will make 88.3 billion euro available for rural development projects in the 27 member states in the period between 2007-2013; a minimum of 25% must be spent on projects that support land management and improve the environment (15).

However, the process of modernizing European agriculture is today a sure fact. This evolution was, at the same time, accompanied by the considerable decrease of population working in this sector (16). The evolution of its development, objectives, mechanisms and priorities demonstrates that the aim of CAP is the maintenance of an economic, social and institutional sector, distinct, multifunctional and orientated towards family farms, with complex regulations for the entire EU. CAP is "a defensive strategy, politically managed, of modernizing European agriculture".

Notes

(1) Gheorghe Pirvu, Economie europeana, editia a Il-a, Editura Universitaria, Craiova, 2004, p. 145-146.

(2) Avram Cezar, Roxana Radu, European Union's Common Policies, Revista de Stiinte Politice/ Revue de Sciences Politiques nr. 11/2006, Editura Universitaria, Craiova, 2006, p. 41-56.

(3) Avram Cezar, Roxana Radu, Laura Gaicu, Uniunea Europeana. Trecut si prezent, Editura Universitaria, Craiova, 2006, p. 190.

(4) Ali M. El-Agraa, The European Union. History, Institutions, Economics and Policies, Fifth Edition, Prentice Hall Europe, 1998, p. 212-213.

(5) Gheorghe Pirvu, cited work, p. 147-148.

(6) Dinan Desmond, Encyclopedia of the European Union, MACMILLAN, 2005, p. 367.

(7) Marin Voicu, Politicile commune ale Uniunii Europene. Cadrul constitutional, Editura Lumina Lex, 2005, p. 89-90.

(8) Avram Cezar, Roxana Radu, Laura Gaicu, cited work, p. 190-191.

(9) Avram Cezar, Roxana Radu, Laura Gaicu, cited work, p. 192.

(10) Petit Yves, Loyat Jacques, La politique agricole commune (PAC), La Documentation francaise, Paris 1999.

(11) Avram Cezar, Roxana Radu, Laura Gaicu, cited work, p. 192.

(12) Source: Eurostat, March 2008.

(13) Nicola Ursu, Politica agricola comuna in 2005, "Euroconsultanta. Ghidul firmei" nr. 1/2005, p. 58.

(14) In order to surpass the crisis of the pension system, EU proposes to member states an early retirement scheme in according to which the older farmers (minimum 55 years old) have to put an end to their agricultural and trade activities, their properties being transferred to younger farmers. See also Livia Popescu, Politicile sociale est-europene intre paternalism de stat si responsabilitate individuala, Presa Universitara Clujeana, Cluj-Napoca, 2004, p. 119, E. Tesliuc, L. Pop, E. Tesliuc, Saracia Si sistemul de protecfie sociala, Editura Polirom, Iasi, 2001, p. 101, R. Radu, M. Neamtu, Implementarea acquis-ului comunitar in agricultura Romaniei, Revista de Stiine Juridice/ La Revue de Sciences Juridiques nr. 2/2007, Editura Themis, Craiova, 2007, p. 158-169.

(15) Source: European Commission, 2008.

(16) In the Europe of the Fifthteen, agriculture supplied job for only one unemployed person from 15, in comparison with the situation in 1960 when the proportion was from 1 to 5, in the same countries.

(17) Avram Cezar, Roxana Radu, Laura Gaicu, cited work, p. 192.
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Title Annotation:Cooperation and Integration: Building the International Community
Author:Avram, Cezar; Radu, Roxana
Publication:Revista de Stiinte Politice
Article Type:Report
Date:Oct 1, 2008
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