Whatever Happened to Argentina’s Wine Boom?

Whatever happened to Argentina’s wine boom (and can that country’s wine industry recover the momentum it has lost)?

Argentina is an important player in world wine. Recent OIV statistics (click here to download the pdf) tell us that Argentina is the fifth largest wine producer in the world (behind the USA and ahead of Australia) and the eighth largest consumer country. Just a few years ago it seemed like Argentina was poised to become the next New Zealand in terms of its export growth, especially here in the U.S.

Anatomy of the Malbec Boom

New Zealand somehow manages  to sell more Sauvignon Blanc each year and it seemed like Argentina might find a way to do the same with its signature Malbec wines. In fact, the boom was so strong that it made some people nervous, as the award-winning 2011 documentary Boom Varietal revealed. Maybe it was too good to be true? Maybe the world would suddenly get tired of Malbec and move on to something else? What then? Bust?

The boom had many causes. Perhaps the most important was the Argentine Peso Crisis of the early 2000s. The collapse of the peso and the opening of the economy to foreign investment was a painful transition for the people of Argentina, but it restored international competitiveness and encouraged foreign investment, both critical to the industry’s rise.

Shift to US Exports

Like many European countries, wine consumption in Argentina is in long-term decline and the economic crisis made things worse for the domestic market, where inexpensive jug wines dominate. As explained in Laura Catena’s book Vino Argentino and Ian Mount’s The Vineyard at the End of the World, Argentine producers found themselves with no choice but to focus on export markets for growth and that meant major investments to improve quality. The U.S. market was the prime target, a different strategy than Chile, which developed more diversified export opportunities.

The US-led export push was effective for several reasons. First the wines presented good value and rapidly improving quality. The U.S. wine market was growing and consumers were turning away from Merlot and later Syrah/Shiraz, opening the door for easy to drink and understand Malbec.

Some of the most important brands established effective distribution partnerships, which enabled them to lead Argentina into the market and firmly establish the category. Catena partnered with Gallo, for example, to make Alamos the market leader No wonder Argentina’s wine exports boomed year after year.

The only questions, it seemed at the time, were would demand continue to rise and, if it did, could Argentina produce enough Malbec to satisfy thirsty buyers?

Argentina

The End of the Boom

And then? Well, the boom didn’t turn to bust as many feared, but Argentina’s export growth has skidded to a stop. As Kim Marcus reports in his recent Wine Spectator article, exports to the U.S. have plateaued at about 13.2 million cases overall. Recent Nielsen data for off-premises sale as reported in Wine Business Monthly paint only a slightly more optimistic picture, with a meager 0.3% growth rate over the previous 52 week and a 2.5% fall in sales revenues over the most recent four weeks.

The Wine By Numbers figures for January through September 2015 shown above (click on the table to enlarge it) tell the story in detail. Export volume is up overall, but revenues are down because of falling unit price. Good success in bottled wine sales in some markets (UK, Germany and China, for example), is offset by declines elsewhere, including Sweden and Denmark. Note the huge rise in UK bulk sales. But the US market is still #1 for Argentina and it remains flat.

An article by Angel Antin in the current issue of Market Watch adds more detail about the U.S. market situation. Impact Databank statistics show that Argentina wine shipments to the US market peaked in 2010-11 in terms of volume after a decade of rapid growth. 2014 volume was modestly down from that peak, but lower than any year since 2009. The boom seems to have faded.

The situation for individual brands depends very much on price point and margin. Constellation’s Marcus James was the market leader in 2009 with 425 thousand  cases in the U.S. market compared with Alamos with 75 thousand cases. But the situation has changed. Alamos, which sells at a premium price point, has plateaued at 900 thousand cases in 2014. Marcus James, selling at a much lower price point, has slumped to just 180 thousand cases.

The Red {Blend} Menace

What accounts for this situation? The U.S. market has indeed shifted. “Red Blends” are now the fastest growing red wine category, rising to #2  after Cabernet Sauvignon and ahead of Merlot and Pinot Noir. I suspect that some of the Red Blend growth is coming at the expense of Malbec sales.

The Red Blend category is very diverse, encompassing all sorts of blends (even some that include Malbec). I like to joke that the key to Red Blend success is that many of the products are blends of two wines that consumers say they hate but secretly love: Merlot and Shiraz. Whether this is really true or not, Red Blend is a convenient category for producers with stocks of red wines and an inconvenient truth for Argentina producers.

But Red Blends are far from the most important problem. It seems to me that the most severe constraint on Argentina exports in recent years has been supply not demand. Not so much difficulty growing grapes and making wine as navigating the harsh economics of the situation.

Economic Policy Squeeze

The economic policies of the government of President Cristina Fernández de Kirchner pushed up inflation rates, which pushed up wage rates, which increased the cost of producing wine. At the same time, the exchange rate was frozen at an artificially high rate, which squeezed margins. Capital controls added to the problem by making it difficult for Argentina to import technology and winemaking supplies from abroad.

The inflation/exchange rate squeeze was particularly hard on the value wine exports that were the initial key to Argentina’s success. It is nearly impossible to profit from exports of Argentinian Malbec with a retail price below about $10, so many of these wines have simply disappeared from the market (a few brave firms are absorbing short-term losses to maintain their market positions for the future).

The good news is that the $10+ part of the U.S. market is growing, and so the Argentinian wines that remain are in a good place. The bad news is that this market segment has become intensely competitive, so it will not be easy to survive and thrive. And of course the Red Blend trend continues.

I’ll end on a positive note. Economic policies are changing in Argentina, which gives hope for the wine industry there for 2016 or perhaps 2017. I’ll analyze the changing market environment in next week’s column.

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Here’s a good soundtrack for any discussion of a boom. Enjoy.

Bach, Beethoven, Bordeaux? Classical Music & the Terroirists’ Revenge

The Future Symphony Institute has published an essay that I wrote for them titled “The Revenge of the Terroirists.” It talks about the complicated relationship between fine wine and classical music in the modern world. Because it is very brief the arguments are not fully developed, but I think you will see where I am going with it.

I invite you to click on the links above to read the essay and to learn about the Future Symphony Institute and its ambitious mission.

What Can Wine Teach Classical Music?

The idea for this essay springs from a series of conversations I have been having with Andrew Balio, the principal trumpet of the Baltimore Symphony Orchestra and the executive director of the Institute. Balio’s mission is to try to help the musical world think through the economic and intellectual crises that confront classical music and to begin the process of rethinking and renewing it for the 21st century.

The website puts it this way: “Our mission is to formulate a strategy for the renaissance of live classical music and to translate that strategy into programs made freely available to everyone they may benefit.”

Balio was interested in wine because it seemed to him that the wine world had resisted some of the forces that are plaguing classical music. Not all wine is great, but there is substantial and expanding support of and interest in the practices, values and traditions associated with authentic wine and wine culture.

And the interest in fine wine is not limited to the rich or the elderly. It is a very broad movement and an expanding one. If wine can do this, he wondered, maybe classical music can do it, too.

The Terroirist Cause

I am interested in this project for three reasons. First, I see Balio and his colleagues as “terroirists” who push back against commodification and unnecessary simplification.  I wrote about and championed the terroirist cause in my 2011 book Wine Wars. Second, I am a fan of classical music, especially chamber music, and I hope they will achieve their ambitious goals.

Finally, as a member of the board of trustees of a liberal arts college, I recognize that many of the issues that confront classical music organizations are similar to the challenges facing the liberal arts.

Once upon a time there was broader understanding and appreciation of the value and purpose of both classical music and liberal arts education. But for somewhat similar reasons both have become very expensive to produce and their critical role in civilization seems to have been forgotten by many.

Both sets of institutions need to rethink their business models to address the new reality, but that will not be enough. Both need to engage society in new ways that will renew understanding and appreciation without diluting or distorting the values that made them important in the first place. Both need a strong dose of terroirism combined with thoughtful and effective strategy.

The Future Symphony Institute seems like one place where this might happen. I hope my brief essay will help the Future Symphony Institute as it launches a series of articles examining ways that wine can inform classical music and help move it back to center stage.

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The illustration above is from a poster created by the Walla Walla Symphony Orchestra that uses the language of wine to talk about their music. That’s a great idea that works both ways. Haven’t you heard a wine described as “harmonious?”

Wine Economist Year in Review & Looking Ahead to 2016

Past and Future - Two-Way Street Sign2015 was a busy year here at The Wine Economist and 2016 is shaping up to be pretty interesting, too.

Looking Back at 2015

In January I spoke in the “State of the Industry” session at the Unified Wine & Grape Symposium in Sacramento. Then we left for New York City where I spoke at “Vino 2015,” a conference and trade show organized by the Italian Trade Commission.

North to Alaska: I traveled to Juneau and Anchorage to give talks and do a fund-raising wine dinner for the World Affairs Council chapters in those cities. Then it was east to Boise, Idaho to speak at the Idaho Wine Commission annual meeting. Both Anchorage and Boise were surprisingly warm, but …

It was really really cold in Ontario when I visited in March to speak to the Winery & Grower Alliance of Ontario meetings, but the people were warm and it was a great experience. Then a quick trip to Walla Walla to talk about wine industry at a regional business summit.

South to California in May, to speak at the Ramona Valley AVA symposium, then a fund-raiser for the Admiral Theatre Foundation in Bremerton along with my friends from Hedges Family Wines. Sue and I were delighted to be invited to the 50-year retrospective tasting of Oregon’s Eyrie Vineyards in Portland, too.

Italy and a Few Surprises

June’s highlight was lecturing at the Conegliano Wine School in Italy and visiting with winemakers in the Veneto and Friuli.While we were in Cormons I got word that around the globe in Yantai, China the Wine Economist had received the Gourmand International prize for the “Best in the World” wine blog. Incredible.

Back home it was north again in July, to speak at the British Columbia Wine Institute annual meetings, then south to Napa Valley to talk at the California Association of Winegrape Growers summer conference.

Two books came out in the fall, my newest volume Money, Taste, and Wine: It’s Complicated and the paperback edition of Extreme Wine. 

We visited Barboursville Vineyards while in Virginia to meet with Luca Paschina and we were lucky to able to meet up with Marc Hochar in Richmond and taste some older vintages of Lebanon’s Chateau Musar on the same trip.

I spoke at the Seattle meetings of the Academy of International Business and then flew to Milan to participate in a discussion on sustainability organized in conjunction with the big SIMEI trade show there.

The year ended on a high note when we learned that Money, Taste, and Wine will receive the Gourmand International award for the year’s best wine writing in a U.S. book. As the U.S. winner it is a finalist for the “Best in the World” award to be revealed in Yantai, China in May 2016.

What’s Ahead for 2016?

The travel schedule is coming together for 2016. I am looking forward to going back to Sacramento at the end of January for my fifth year moderating the “State of the Industry” program at the Unified Wine & Grape Symposium.

A few weeks later we will head to Napa where Sue and I are on the faculty for the Professional Wine Writers Symposium.

Then it is north to Anchorage for another World Affairs Council fund raising program before returning to Walla Walla for the big Reveal Walla Walla trade auction.

It looks like we will be going to Portugal in May to speak at a conference organized by Wines of Alentejo and later to Seattle for Riesling Rendezvous, an international conference sponsored by Chateau Ste Michelle and Dr Loosen.

That’s what’s on tap for 2016 so far, but the year is still young. No wait — it actually hasn’t even started yet. Who knows where the wine rivers and roads will take us.

That’s the look back and ahead. Hope to see you somewhere on our travels in 2016. In the meantime, cheers to all! And have a great New Year.

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Sometimes I feel like I have been everywhere in the wine world to speak to wine industry groups, but the truth is … I’m not even close!

Wine Spectator Review of “Money, Taste, and Wine” and a Shameless Gift Idea

The end of the year is upon us and you know what that means! Time to wrap those holiday gifts and time for Wine Spectator, America’s best-selling wine magazine, to announce their list of Top 100 wines for 2015.

Top Wines … and Book Reviews, Too

The Top 100  issue of Wine Spectator is also the annual book review issue and I was honored to have my most recent book, Money, Taste and Wine: It’s Complicated, included in the collection. In fact it is the lead review.

Thanks to Tom Matthews (who wrote the review) and the other Wine Spectator editors for this. So many great wine books were released this year that it is an honor just to make the list.

Here’s a list of the other books in the review article. Nice company!

  • Barolo MGA by Alessandro Masnaghetti
  • Tangled Vines by Frances Dinkelspiel
  • A Natural History of Wine by Ian Tattersall and Rob DeSalle
  • Wine, Moon and Stars by Gérard Betrand
  • American Wine by Tom Acitelli
  • The Winemaker by Richard G Peterson
  • True Taste by Matt Kramer and
  • Thirsty Dragon by Suzanne Mustacich

Caffeinated, Catchy and Quick

Wine Spectator had some nice things to say about Money, Taste and Wine. My favorite line is “A caffeinated writing style, catchy themes and rapid jumps from one subject to the next make the book a quick and lively read.” That’s sounds a little like a literary tasting note!

That’s not to say that they liked everything about the book and I’m taking their constructive criticism as a challenge to do even better as I work on my next book, tentatively scheduled for 2017.

Here’s the Shameless Part

In the meantime, do you have a wine lover on your gift list? If so, you might want to consider a book — best thing ever to give or receive, don’t you think? OK, maybe next-best to wine itself. Here’s my Amazon list of favorite gift books, perfect for your favorite wine friends.

Talk about shameless self-promotion. Cheers, everyone!

Gourmand International Award for “Money, Taste, and Wine”

I’ve just learned that my new book Money, Taste, and Wine: It’s Complicated has won an international award for best drinks writing in a U.S. book this year.

The award comes from Gourmand International and will be presented in Yantai, China on  May 28, 2016 at the annual awards ceremony. As the U.S. winner, Money, Taste, and Wine is a finalist for the “Best in the World” award in this category, the winner of which will be revealed in Yantai. Very exciting!

The other national finalists and winners in other categories of the awards will be posted on Gourmand International website in February.

Sincere thanks to the Gourmand International  judges for this honor. Here is a video about the 2015 awards in Yantai. Enjoy!

Two Faces of Wine Innovation & Sustainability: SIMEI and Amorim

Sue and I recently returned from the biennial  SIMEI trade show in Milan. SIMEI stands for Salone Internazionale Macchine per EnologIi e Imbottigiiamento, which translates as International Enological and Bottling Equipment Exhibition.

SIMEI By the Numbers

The trade show’s focus  is narrow (equipment and technology) compared to the all-things-wine Unified Wine & Grape Symposium here in the U.S, which is my point of reference for these things. But its scope is broad, including not just the wine industry since tanks, bottling equipment, etc. are used in other sectors such as olive oil and so forth. No wonder so many people found a reason to attend.

By the numbers (according to SIMEI’s press release) there were 46,000 visitors from 90 countries, 600 exhibitors from 28 countries, and 12,000 tons of equipment and products displayed. The trade show took up 4 huge halls in the vast Fieromilano Rho exhibition center. The video below gives you a sense of the scale and scene.

Technology was the star of the show and one of the highlights was a gala dinner where awards were presented for outstanding new innovations. Wines & Vines reported on the top innovations.

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Sustainability Congress: Theory vs Practice

SIMEI is organized by the Unione Italiana Vini (Italian Wine Association), whose members account for 70 percent of wine production in Italy. They organized two international congresses in conjunction with the trade show as well as a number of presentations and demonstrations that took place in the halls among the big machines.

The congress on “Sustainable Viticulture as a Tribute to Wine Quality” followed up on a similar session in SIMEI 2013. The earlier meeting worked to agree a universal definition of sustainability in the wine industry, which is either easy or difficult depending upon how you approach the question.

It is easy to agree in theory that sustainability includes economic sustainability, environmental sustainability, and social sustainability “pillars” — this is now conventional wisdom. But just what exactly is meant by each concept and how can they be evaluated in practice? Not so easy.

The 2015 meeting probed some of the issues and trade-offs between and among the three pillars. One line of discussion noted the need for sustainability to be certified according to objective criteria, which is important if the concept is to mean anything. But what and whose criteria should be used?

I think there was a consensus in the room that a common or universal set of standards was needed (“harmonization” is a term often used here). Although I am probably wrong about this as I am about many things, I spoke in opposition to the single-minded pursuit of universal standards.

I see each country or region starting from a different base and often facing different economic, environmental, and social issues and constraints. I argued that at this moment it is more important that each region make the most progress it can towards sustainability. I cited programs in South Africa and New Zealand as good examples.milano

I worry that putting the main emphasis on having universal standards will  result either in diluted “least common denominator” rules or will squeeze stakeholders out of the sustainability movement altogether, limiting its reach and effectiveness, because the common rules do  not address their particular situations and concerns.

One size does not necessarily fit all, even if there is some wiggle room built in. It took only a moment for an EU representative to rise and explain to the audience why I was wrong, but I will stick to my viewpoint.

I admit that my views are based on an American way of looking at things (I love the grand Federalist laboratory that is the United States), but I don’t think this is exclusively an American attitude. I do not see universal wine sustainability rules happening soon within the US much less on a global scale.

Amorim’s Sustainability Initiative

If turning theory into practice was not easily accomplished in the congress center, there was plenty of evidence of strong efforts out in the trade show. Sustainability isn’t just ethics or philosophy, it is also good business and many of the exhibitors have embraced this concept.

An example is Amorim, the innovative Portuguese producer of corks for the global wine industry and many other cork products. We stopped by the Amorim exhibit and talked with Carlos de Jesus, marketing director of Amorim, and Carlos Santos, the head of Amorim Cork Italia. They were both excited to tell us about Amorim’s cork recycling programs, which tick all three sustainability boxes.

Cork is a natural product so it would seem that recycling it in a sustainable way would be easy, but it is not. You cannot, for example, simply re-use a wine cork on another bottle of wine — health and safety laws as well as common sense rule that out.

So the challenge is to collect the used corks and then repurpose them in some way that adds value to society without bankrupting all involved. The Amorim approach (which is implemented in different specific ways in each country where it has been rolled out) partners with local non-profit groups to collect the corks, keeping them out of the landfill.

Amorim pays these groups for the corks (thus supporting their social programs) and then grinds up the cork and partners with various producers to make useful products. In the U.S. you might have seen shoes with soles made from recycled cork, for example.

In Italy the cork is used to make the sort of building insulation panels that would otherwise by made out of foam. Cork is an excellent insulator and the price is competitive with the conventional product.

The Amorim program promotes social and environmental goals. What about economics? Well, I was told, this isn’t designed to be a profit center for Amorim. The idea is not to make a lot of middleman money reselling the corks that the non-profits have collected, but rather to facilitate the recycling system itself.

Many Small Steps Can Add Up

But that doesn’t mean that it isn’t good for business, Carlos de Jesus stressed. Amorim mainly markets to its direct buyers — the wineries — and doesn’t have as much interaction as they would like with the people who ultimately open the bottles. Programs like this give Amorim an opportunity to tell cork’s sustainability story directly to consumers and to establish a very positive image of cork with them. And since producers want their products to appeal to consumers, if consumers have a reason to choose cork  … well you can see where this can lead.

Amorin’s program is important even if it is a small step toward the goal of sustainability. If each sector of the industry can search out an appropriate strategy (and each region of the wine world do the same), then all these small steps can potentially add up to the more sustainable future that is the goal.

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Book Reviews: “Thirsty Dragon” and “A Decent Bottle of Wine in China”

Brief reviews of two new books on wine in China.

Suzanne Mustacich, Thirsty Dragon: China’s Lust for Bordeaux and the Threat to the World’s Best Wines (Henry Holt, 2015).

Suzanne Mustacich’s new book is rightly being hailed as one of the wine books of the year (the Financial Times named it one of 2015’s best business books). It is a great read and deserves both critical acclaim and your attention.

I have tried to follow the China wine scene closely over the last ten years, but I still found that I learned something new in every chapter. Mustacich deftly connects the dots and supplies depth and detail. The stories she tells are incredibly interesting and relevant. Each chapter reads like a New Yorker magazine investigative reporting piece — that’s meant as high praise.

In broad terms, you might say that Thirsty Dragon is a love story. First China discovers that it loves Bordeaux, then Bordeaux realizes that it desperately needs China whether it loves her or not, then finally China realizes that its lust for Bordeaux might have been a mistake. In the end we have Chinese-owned Bordeaux chateaux and French investments in China and, in a funny way, if is hard to know where one set of influences and dependencies stop and another begins. Bordeaux may never be the same after its China fling and China has changed a lot, too.pogo-we-have-met-800wi

Along the way we are introduced to many fascinating personalities, both the usual big time suspects and smaller players whose stories reveal a great deal.  This is the perfect book if you are interested in China or in Bordeaux or in wine or in how globalization is changing business culture. Highly recommended.

The subtitle suggests a “threat to the world’s best wines” and I struggled just a bit trying to decide what Mustacich meant by this. Is the threat due to fraud and counterfeit, which are analyzed in detail here? Is the threat the collapse of Bordeaux’s en primeur system, which is analyzed in detail. Or is it the of the rapidly growing Chinese wine industry itself, with its peculiar characteristics?

Certainly Bordeaux has reason to feel threatened by changing economic circumstances, but it is not clear who is to blame for that! Sometimes, as Pogo said, we are our own worst enemies.

I was fortunate to moderate a panel discussion of wine in China that featured Suzanne Mustacich and I asked her about the threat. Two threats, she said. The first is from the rampant fraud, which undermines the market for top wines. The second was the greed that drove China’s speculative wine bubble. I agree, that’s a real threat — one of those Pogo problems.

Thirsty Dragon is a must read if you want to understand how China is transforming the world of wine.

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Chris Ruffle, A Decent Bottle of Wine in China (Earnshaw Books, 2015).

Chris Ruffle is a Chinese-speaking Yorkshire native who specializes in finance. So it makes perfect sense that he would decide to plant vineyards in Shandong and build a winery designed on the model of a Scottish castle. His quest to produce A Decent Bottle of Wine in China is a very personal account of his ten-year castle-building, vineyard-planting, wine-making journey.

Ruffle writes that he began this book project intending to write one of those popular romantic ex-pat stories like A Year in Provence or Under the Tuscan Sun, but the business side of the winery just wouldn’t be left out. Indeed, much of the book follows the author and his family as they deal with pesky neighbors, inconvenient local officials and inefficient workmen and contractors in a very Year Under the Shandong Sun sort of way.

But the book this really reminds me of is Caro Feely’s excellent Grape Expectations: A Family’s Vineyard Adventure in France. Feely and her family moved from Ireland to France to follow their dream and the winery they restore is nobody’s idea of a castle, but otherwise there many similarities. Both books teach a lot about wine-growing, wine business, the clash of cultures that ex-pats experience, and the power of wine to overcome obstacles.

One big difference is that the Feelys went all in on their project. No day job safety net. Ruffle kept his investment fund job and it is a good thing. Ten years in and with enormous work and investment, his Treaty Port winery is just about breaking even (if, of course, you don’t count the value of his time).

But, and this is the point, he is by his own account finally making that decent bottle of wine in China and not losing too much money in on each sale! A fascinating story, full of great information about China, wine and life.

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These two books could not be more different, but because they are both about wine in China I kept waiting for them to intersect. And they did in at least two places.

Mustacich gives a good account of both Chinese wine investments in France and French projects in China. One of these is a vineyard and winery that DBR Lafite, one of the most famous Bordeaux names, has built-in Shandong. In fact the project is next door to Ruffle’s Treaty Port winery and the first Lafite Chinese vintage was actually made in Ruffle’s cellars.

This would seem to give credibility to Ruffle’s project, and it does, but I feel a little sad for Lafite because Ruffle reports all sorts of mold and fungus problems in the vineyards (not especially good news for nearby Lafite) and, just when it looks like things are getting better, the government decides to build a big highway through both the Treaty Port and Lafite vineyard properties. Yikes!

The award-winning Silver Heights winery is featured in Thirsty Dragon and it makes a cameo appearance in Ruffle’s book. Chris Ruffle and his wife make a trip to visit this highly regarded producer and, at the end, Chris’s wife turns to him and says she’s really glad they went. They are even crazier than you are, she says. Always good to put things in perspective, I guess!

Do you have to be crazy to make a decent bottle of wine (in China or anywhere else)? I will leave that up to you.

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