Tax on sugar sweetened beverages and influence of the industry to prevent regulation

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Peer-reviewed | Manuscript received: 24.07.2017 | Revision accepted: 18.10.2017

                Tax on sugar sweetened
                beverages and influence of the
                industry to prevent regulation
                Katrin Schaller, Ute Mons

                                                                                                       diseases, reduced quality of life, and
         Abstract                                                                                      lower life expectancy [9, 10] (• Fi-
                                                                                                       gure 1). The prevalence of obesity and
         Consumption of sugar sweetened beverages in Germany is high compared to
                                                                                                       T2DM has taken on alarming pro-
         other nations worldwide. Sugar sweetened drinks contribute to the development
                                                                                                       portions. In Germany, 18 % of adults
         of obesity and type 2 diabetes mellitus. Secondary diseases are presenting the
                                                                                                       are obese, that number being on the
         health care system with enormous challenges, which is why prevention of those
                                                                                                       rise [11], and even 6 % of children and
         diseases must be a priority. A tax on sugar sweetened beverages as part of a
                                                                                                       adolescents are severely overweight
         comprehensive strategy can contribute substantially to obesity prevention, as
                                                                                                       [12]. 7.7 % of adults in Germany suffer
         experience has shown in Mexico, France, and the USA. The food industry is using
                                                                                                       from diabetes (type 1 and type 2, not
         the same tactics as the tobacco industry to prevent effective regulation. With
                                                                                                       including gestational diabetes) [13].
         strong political will and support from professionals and the public, however,
                                                                                                       The severe health consequences of
         it is possible to introduce a tax on sugar sweetened beverages despite massive
                                                                                                       obesity and diabetes put an enormous
         resistance by the industry.
                                                                                                       burden, not only on the affected per-
         Keywords: obesity, prevention, food industry, sugar tax, nutrition policy                     sons but also on society and the social
                                                                                                       health insurance systems. According
                                                                                                       to an estimate, the long-term health
                                                                                                       effects of obesity in Germany result
                                                                                                       in costs of about € 63 billion per year
                                                           Introduction                                [14]. It is therefore essential to prevent
                                                           Germany is among the top ten coun-          the development of obesity, and to re-
                                                           tries in the world when it comes to         duce the number of existing cases of
                                                           consumption of sugar sweetened              obesity in order to minimize the oc-
                                                           beverages [1], and is also at the top       currence of secondary diseases.
                                                           of the list in terms of juice consump-
                                                           tion as compared to other European
                                                           countries [2]. In 2016, German per
                                                                                                       Solution strategies
                                                           capita consumption of sugar sweete-
                                                           ned beverages was nearly equal to the       The ideal way to prevent obesity
                                                           consumption of mineral water: 116 L         is a combination of behavioral and
                                                           soft drinks, 33 L juice, and 153 L          structural prevention. Behavioral
                                                           mineral water [3]. Especially chil-         prevention aims to change the health
                                                           dren, adolescents, and young adults         behavior of individuals; structural
                                                           consume large quantities of sugar           prevention means to modify the
                 Citation:
                                                           sweetened beverages: In this group,         living environment in such a way
                 Schaller K, Mons U (2018) Tax
                                                           almost half of the drinks consumed          that it promotes a healthy lifestyle
                 on sugar sweetened beverages
                                                           are juices and soft drinks [4].             [15]. Current living environments,
                 and influence of the industry to
                                                           Sugar sweetened beverages contribute        however, tend to stimulate physical
                 prevent regulation. Ernahrungs
                                                           to the development of obesity [5],          inactivity and an increased intake of
                 Umschau 65(2): 34–41
                                                           type 2 diabetes mellitus (T2DM) [6],        energy-dense foods.
                 This article is available online:         and caries [7, 8]. Obesity and T2DM         What is needed, therefore, is a com-
                 DOI: 10.4455/eu.2018.007                  are particularly significant, as they       prehensive strategy that addres-
                                                           are primary causes of several severe        ses many different areas of life in

                                               34    Ernaehrungs Umschau international | 2/2018
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                                                                                       Reproduction and dissemination – also partial – applicable to all media only with
                                                                                       written permission of Umschau Zeitschriftenverlag GmbH, Wiesbaden.

    Health consequences                                 Major diabetes                    order to effectively prevent the de-
          of obesity                                    complications                     velopment of obesity – ideally du-
                                                                                          ring childhood. The World Health
    type 2 diabetes
                                                        stroke                            Organization (WHO) recommends
    mellitus cardiovascular disease                                                       a package of several effective mea-
                                                        blindness
    11 types of cancer                                                                    sures1, some of which target the re-
    dyslipidemia                                        heart attack                      duction of sugar consumption [16,
    sleep apnea                                                                           17] (• Figure 2).
                                                        kidney failure
    shortness of breath
                                                        amputation
    orthopedic complications
                                                                                          Influence of the
Fig. 1: Health consequences of obesity and diabetes                                       food industry
        [own illustration according to (9, 10)]
                                                                                          Some important obstacles will
                                                                                          have to be overcome before a tax
                                                                                          on sugar sweetened beverages can
                                   problem
                                                                                          be introduced (• Box), because the
                   high sugar consumption increases the risk of                           food industry is opposed to any
                   - type 2 diabetes mellitus                                             measures that would lead to a re-
                   - obesity                                                              duced consumption. The industry
                   - caries
                                                                                          goes to great lengths to prevent
                                                                                          effective regulation, employing the
                                 consequences                                             same tactics as the tobacco industry
                                                                                          [18, 33]. These include direct policy
            - reduced quality of life                                                     interference (lobbying), influencing
            - reduced life expectancy                                                     research and the media, as well
            - cost to society                                                             as corporate social responsibility
                                                    €
                                                                                          (• Figure 3). Manufacturers use
                                                                                          these tactics to build up opposition
                              solution strategy                                           against such measures in politics
   supplementing behavioral prevention with structural prevention                         as well as in the population, while
   - change of living environment (“Make the healthy choice the easy choice.”)            promoting weak voluntary com-
   - political action           §§§                                                       mitments and education measures
   - policies reach the entire population                                                 instead.
                                                                                          A systematic review of the litera-
                                                                                          ture regarding the influence of the
             policies recommended by the WHO (among other)
                                                                                          industry was conducted. For this
   - tax on unhealthy foods and subsidy of healthy foods
                                                                          €
                                                                                          review, the literature published bet-
   - reduction of sugar in foods                                                          ween 1 January 1987 and 31 Au-
     and non-alcoholic beverages
                                                                                          gust 2017 was searched in the liter-
   - reduction of advertising for unhealthy foods to children
                                                                                          ature database PubMed on 31 Au-
   - policies to motivate food producers to improve                           Kekse
     the availability, affordability, and acceptance
                                                                                          gust 2017. Search terms included
     of healthy foods                                                                     “sugar sweetened beverage*, ssb*,
   - improved food labeling                                       Kekse                   soda*, soft drink*, carbonated beve-
                                                                                          rage*, sugar-sweetened*, beverage*,
                                                                                          sugar, industry, economic, interfe-
                                    results

           - reduction of sugar consumption in the population
           - reduction of damage caused by secondary diseases
           - declining consumption
           - change of products/product range necessary

Fig. 2: Consequences of high sugar consumption, strategies for reduction of               1
                                                                                                     Article “Instrumente der Ernährungspoli-
        sugar consumption and consequences for public health and manu-                        tik. Ein Forschungsüberblick” (Instruments of
        facturers [own illustration according to (9, 10, 15–17)]                              nutrition policy. A research overview) [19]

                                                  Ernaehrungs Umschau international | 2/2018        35
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              Powerful policy: tax on sugar sweetened beverages
              One key element of a comprehensive strategy is the implementation of fiscal policies, because they have
              multiple effects. A price increase for unhealthy foods, for instance, motivates consumers to buy less of these
              products. For sugar sweetened beverages, price elasticity of demand, i.e. the change in demand as a reaction
              to price changes, is –0.79 to –1.3 [18, 19]; that means that a price increase of 10  % would decrease con-
              sumption by 7.9–13  %. Persons with low incomes, young people, and overweight people are particularly
              price sensitive [18]. Modeling and experimental studies point out that a tax increase raising the price of sugar
              sweetened beverages by at least 20%, likely would decrease the consumption and the associated health
              consequences proportionate to the price increase [18].
              Simultaneous significant reduction of the value-added tax on healthy foods like fruits and vegetables could
              avoid a disproportionate burden on low-income individuals and at the same time promote switching to
              healthy foods [20]. Ideally, the health consequences – particularly obesity – would decline in the long term
              as a result of the reduced consumption of unhealthy products. At the same time, taxes on unhealthy foods
              are an incentive to the industry to change unhealthy products by improving their nutritional quality – this,
              too, contributes to a healthier diet [18, 21]. Beyond that, taxes on unhealthy foods increase government
              revenue, which could be earmarked for obesity prevention [18]. Price-related measures are particularly sig-
              nificant because they address the lower income segment of the population, where excess weight and obesity
              are more prevalent than among people with higher incomes. This way, price-related measures can even
              contribute to mitigating health inequalities [22].
              According to intervention and modeling studies, a tax on sugar sweetened beverages has the largest effect
              of all pricing measures. It has the potential to positively influence consumer behavior, particularly if it is
              imposed simultaneously with financial incentives on fruits and vegetables [18]. Several countries currently
              levy a tax on sugar sweetened beverages, among them Mexico, France, Ireland, and the United Kingdom,
              other countries are considering the option [18]. However, the industry has prevented such a tax from being
              introduced in several countries. Denmark, for instance, cancelled a proposed sugar tax in 2012 in response
              to intensive lobbying by the sugar industry. Finland refrained from an increase on the tax on sweets that has
              been in effect since 2010 because of a complaint by the Finnish Food and Drinks Industries’ Federation to
              the European Court of Justice [23, 24].
              First evaluation studies in countries with a tax on sugar sweetened beverages indicate that these taxes are
              effective, at least in the short term: They lead to price increases and are thereby passed on to consumers,
              although the extent differs between the various types of taxed drinks and the point of sale [23, 25–27]. Also,
              the tax influences consumer behavior: Demand declined in all countries that were evaluated [23]. In Mexico
              and in Berkeley (California/USA), the tax caused a reduction in purchases of sugar sweetened beverages of 6
              and 9%, respectively, and sales of untaxed drinks, particularly water, increased by 4 and 15% [28–30]. This
              trend continued in Mexico during the second year after the introduction of the tax [31]. The effect varied
              in intensity depending on socioeconomic status: low-income households reduced the purchases of sugar
              sweetened beverages more significantly [29, 31, 32]. There is no evidence as yet to what degree these taxes
              have long-term effects on consumer behavior, body weight, and public health.

          rence, influence, regulation, tax”, and     lobby control organizations were              industry and its lobby organizations
          were linked with operators. The ini-        included.                                     argue that taxing sugar sweetened bev-
          tial search identified 1,539 articles, of                                                 erages is ineffective, undifferentiated,
          which 104 were selected based on the                                                      has a disproportionate effect on low-in-
          title. After exclusion of duplicates,                                                     come households, promotes cross bor-
                                                      Influence on politics
          editorials, commentaries, news, es-                                                       der shopping and smuggling, harms
          says, features, and contributions           In order to prevent strict regulation,        the economy, and destroys jobs [34].
          with unsuitable topics, 19 articles         producers are not only influencing            The industry points out that it could
          were included in the review; 3 more         politicians directly, but are also crea-      solve the problem by reformulating
          were located by means of cross-ref-         ting special interest groups and front        the products and that education, prod-
          erences. In addition, hand-searched         groups that represent their interests         uct labeling, and nutritional guide-
          reports by economic, health, and            to policy makers and the public. The          lines are more effective [34, 35].

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                                                                                                                written permission of Umschau Zeitschriftenverlag GmbH, Wiesbaden.

                                                                       food industry

                 marketing, sponsoring
                                                                                                                                       financing of studies
             goals:
                                                          food industry                     public health
           - sales increase
           - prevention of
             regulatory measures
                                                                                                                        research
                                                                       political will
                                                                                                   ev                                                      lobbying
                                                                                                     id
                                                                                                       e
                                                     rt
                    public          pr
                                                   po
                                      e                                                                                                                    goal: prevention
 influence                          m ven

                                                                                                         nc
                    health                                                                                                                                 of regulatory measures
                                                sup

                                     ea tio
                                        su n

                                                                                                           e
 on the                                   res
 scientific                                                               public                                                                           - “measures are
                                                                                                                                                              ineffective”
 community                                                                health
                             evidence                                                                                                                      - “limitation of
  goal:             research                 population                                                        policies                                        personal choice”
 to cause                                                                  „Make
                                                                     the healthy choice                                                       - “limitation of
 uncertainty                                    n e                                                                   - tax increases
                                             io nc                                                                                               brand rights”
 among the                                 at ide                     the easy choice.“                               - advertising bans

                                                                                                              io n
                                       r m    v                                                                                               - “distortion of
 population with                     fo t e                                                                           - product regulation
                                  in ou                                                                                                          competition”

                                                                                                           tat
                                                ev

  contradictory                                                                                                       - mandatory
                         media      ab               u                                                                                       - recommendation

                                                                                                         en
   research results
                                                  al

                                                     at                                                                 quality standards
                                                          io n                                          le m                                   of self-regulation
                                                                                                  imp                   for canteen meals
                                                                             effect                                   - education          - development of
                                                                                                                        campaigns            ineffective, industry-
         media reports:                              low for weak policies        high for effective policies         - etc.                financed prevention
         - “responsible citizens”                                                                                                           programs
         - “not the type of food
            is essential, but the           Corporate Social Responsibility:
               relation of energy           goal:
                   and exercise”            to create an image of a responsible industry with positive impact on society

    Fig. 3: Influence of the food industry to prevent effective regulation [own illustration]

In public discourse in Germany, the                  ened soft drinks as part of a “diverse                          Self-regulation
special interest groups of the sugar                 and balanced, yet pleasurable diet”                             As an alternative to strict regula-
and soft drink industry take the po-                 can certainly be a component of ba-                             tion, the industry offers voluntary
sition that there is no correlation                  lanced nutrition [36].                                          commitments. However, these are
between sugar consumption and                        In the USA, Coca-Cola, PepsiCo, and                             generally weak, give a lot of leeway,
excess weight. They explain that                     their lobbies resisted 29 regulations                           usually do not include sanctions, and
the sole driving factor is a person’s                or proposed regulations between                                 measurable effects are rather sparse
energy balance, and that the source                  2011 and 2015. Between 2011 and                                 [42, 43].
of the energy makes no difference                    2014, Coca-Cola spent about $6                                  For instance, in the EU Pledge to reg-
whatsoever; they also emphasize                      million per year for this lobbying                              ulate food and beverage advertising
each person’s individual responsibi-                 activity, PepsiCo spent around $3                               aimed at children, the participating
lity for their own diet [36, 37]. Ar-                million, and the American Beverage                              companies set different age limits for
guments against a sugar tax are: A                   Association about $1 million [39].                              the definition of “children” and selec-
sugar tax has no effect on consump-                  In 2009, PepsiCo threatened to move                             ted different products to fall under the
tion and excess weight, leads to loss                its headquarters out of New York                                pledge [44]. The definitions of a simi-
of jobs and limits citizens’ freedom                 when the state considered introdu-                              lar US commitment were similarly
of choice [33, 36, 38]. The pro-                     cing an 18% tax on sugar sweetened                              inadequate; furthermore, companies
ducers’ lobby declares that “respon-                 beverages [40]. In Mexico, the food                             not participating in the pledge con-
sible consumers” are able to decide                  and beverage industry influenced the                            tinued to advertise products excluded
based on the mandatory informa-                      responsible ministries, successfully                            by the agreement [45].
tion of food labels “what prod-                      delaying the introduction of a vol-                             Companies participating in the Ca-
ucts meet their wishes and current                   untary commitment to fight obesity                              nadian Children’s Food and Beverage
needs”; furthermore, sugar sweet-                    and weakening the guidelines [41].                              Advertising Initiative pledge to either

                                                                 Ernaehrungs Umschau international | 2/2018                  37
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          advertise only those foods to children     uncertainty among researchers and            newspaper articles appeared in 2014
          that satisfy defined nutritional crite-    the public. For instance, the sugar          which declared that not sugar is re-
          ria, or to not advertise to children at    industry in the USA sponsored a              sponsible for excess weight, but an
          all. According to an analysis of food      research program as early as the             unbalanced diet. They emphasized
          and beverage advertising on several        1960s and 1970s, which came to               individual responsibility for one’s
          TV channels, the agreement had no          the conclusion that fat and choles-          diet and focused on the importance
          significant effect on the children’s TV    terol are the main causes of cardio-         of physical activity for weight con-
          food advertising environment [46].         vascular disease; the role of sugar          trol [60].
          On the other hand, a report by Ad-         in this context was downplayed
          vertising Standards Canada, an in-         [52]. The correlation between sugar
          dustry-supported entity responsible        consumption and obesity is also              Corporate Social Responsibility
          for monitoring this voluntary com-         questioned. Several current reviews          Producers present themselves as part
          mitment, confirmed “full compliance”       show that studies that involve a             of the solution by initiating Corporate
          in the TV advertising [47]. In Spain,      conflict of interest with the food in-       Social Responsibility (CSR) programs
          almost half of the ads on television did   dustry are significantly less likely         that include physical exercise and
          not comply with the requirements of        to find any correlation between the          nutrition education. For instance,
          the voluntary commitment for food          consumption of sugar sweetened               the PepsiCo Foundation supported
          and beverage advertising directed at       beverages and body weight and the            programs promoting a healthy life-
          children [48].                             consequences of obesity than do in-          style and healthy diet with $1 mil-
          In Australia, where the industry in-       dependent studies [53–55].                   lion in 2012. Dr Pepper Snapple
          troduced the Daily Intake Guide as         In caries research, the sugar indus-         sponsored the establishment and
          a voluntary initiative, most food          try in the USA was able to influence         maintenance of playgrounds with
          producers did not use the food label       the research of the National Caries          $15 million, and the Coca-Cola
          recommended as a standard in the           Program, so that it did not focus on         Foundation grants about a third of
          initiative, which lists the energy         the caries-causing effects of foods,         its philanthropic expenditures to or-
          content as well as the amounts of          but on methods of preventing caries          ganizations that fight obesity, with
          fat, saturated fat, sugar, and salt.       without restricting sugar consump-           promotion of exercise being a special
          Instead they generally used the least      tion [56]. The sugar industry also           focus [35, 61, 62].
          informative label, which only lists        tried to influence the WHO’s guide-
          energy content [49].                       lines on reducing sugar intake. The          Marketing
          A voluntary regulation on the sale         main strategy consisted of spread-
          of soft drinks in elementary schools       ing doubt about the scientific basis         Producers use advertising not only
          was largely unfamiliar to schools in       of the guidelines, introducing other         to promote their own products, but
          Spain [50], and in the USA, such an        risk factors like lack of exercise into      also to prevent planned regulation.
          agreement was not very restrictive,        the discourse, and suggesting solu-          The beverage industry in the USA,
          involved only the three largest bev-       tions for reducing the risk of caries        for example, invested over $10 mil-
          erage producers, and was voluntary         by administering fluoride [57, 58].          lion in an extensive ad campaign
          for the schools [42]. According to a                                                    on TV, radio, and billboards, and
          study supported by the American                                                         in paid staffers going out into the
                                                     Influence on the media
          Beverage Association, an entity re-                                                     public in Berkeley and San Francisco
          presenting the interests of the US         The industry tried to use the media          to turn the population against the
          beverage industry, the voluntary           to downplay the health risks of              planned tax on sugar sweetened bev-
          commitment was effective: After            sugar consumption and thus im-               erages and to prevent the regulation
          the agreement was established,             pact public opinion. Industry re-            [18].
          the proportion of sugar sweetened          presentatives appear in the media
          drinks sold in schools declined, the       primarily when regulation is to be
                                                                                                  Situation in Germany
          proportion of water increased, and         introduced. Their main arguments
          the energy content and bottle size of      are that sugar sweetened bever-              In German politics, a tax on sugar
          beverages both decreased [51].             ages alone are not responsible for           sweetened beverages currently
                                                     obesity, and that the proposed reg-          meets with little support. Instead,
                                                     ulatory measures are exaggerated             Germany focuses its obesity preven-
          Influence on research
                                                     and damaging to the industry. In-            tion mainly on behavioral preven-
          The industry is influencing research       stead, self-regulatory measures are          tion in children and adolescents, and
          with the goal of generating contra-        presented as being effective [59]. In        relies on voluntary commitments
          dictory research results, which cause      the British press, producer-friendly         by manufacturers [15]. However,

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                                         said that unhealthy diet and obesity          ation among the population. Pro-
 Countermeasures                         are particularly prevalent in the low-        ducers are employing different meth-
 by the industry                         er-income segment of the popu-                ods to prevent effective regulation
 Experience in countries which           lation – a tax could therefore have           such as a tax on sugar sweetened
 have introduced a tax on sugar          greater effect on this target group           beverages. Being able to introduce
 sweetened beverages, particu-           especially. In addition, a regressive         a regulatory tax despite massive re-
 larly Mexico and the USA (Ber-          effect could be counteracted by ma-           sistance takes strong political will
 keley), shows that it is possible       king healthy foods and beverages              and public support. Scientific associ-
 to introduce such a tax despite         more affordable through tax breaks            ations and health organizations can
 massive resistance by the indus-        or subsidies [18, 19, 23]. Substitu-          contribute substantially to the effort
 try. Prerequisite is a well-planned     tion processes must also be consid-           by providing sound information.
 campaign supported by a broad           ered: Consumers replace the taxed
 coalition of decision makers,           products with other sugar sweet-
 health organizations, and grass         ened products (e.g. juice), switch to
                                         cheaper brands or stores, or turn to          Conflict of Interest
 roots organizations [18] – a base
                                         low-sugar/sugar free products (e.g.           The authors declare no conflict of interest.
 movement that has yet to be
 formed in Germany.                      water, diet varieties). With a care-
                                         fully thought-out tax structure,
                                         these substitution processes can be
                                                                                       Dr. Katrin Schaller1
                                         controlled in such a way that pos-            PD Dr. Ute Mons
                                         sible negative health effects are kept        Stabsstelle Krebsprävention/WHO-Kollabora-
effective obesity prevention requires    to a minimum or avoided [18].                 tionszentrum für Tabakkontrolle
a combination of different measures      According to two simulation cal-              Deutsches Krebsforschungszentrum
                                                                                       Im Neuenheimer Feld 280, 69120 Heidelberg
that address different issues at the     culations, a sales tax on beverages           1
                                                                                         k.schaller@dkfz.de
same time, and motivate individu-        with added sugar (not including
als to change their behavior in ad-      juices and dairy products) of 20% in
dition to creating a health-promo-       addition to the value added tax could
ting environment. A tax on sugar         reduce sugar and energy consump-
sweetened beverage as part of such       tion in Germany. According to the
a package of measures can make an        calculations, this effect would be
important contribution to obesity        much more pronounced in men
prevention [16, 19].                     than in women, and also in youn-
Health organizations support such        ger and low-income persons. The
a tax. For instance, the German Al-      calculations also reveal that such a
liance Non-communicable Diseases         tax could reduce the development
(Deutsche Allianz Nichtübertragbare      of caries and lower the number of
Krankheiten = DANK) recommends,          persons with excess body weight
among other policies, a health-pro-      by 3%, and with obesity by 4% [64,
moting restructuring of food taxa-       65].
tion: This includes lowering the
sales tax on healthy foods with low
fat, sugar, and/or salt content, and
                                         Conclusion
a simultaneous tax increase for pro-
cessed foods with a high fat, sugar,     In Germany, measures available
and/or salt content. The tax struc-      for obesity prevention are far from
ture is to provide incentives for a      being fully utilized, despite urgent
healthy diet, without unduly in-         need for action. A tax on sugar
creasing the burden on citizens [63].    sweetened beverages would have the
However, certain aspects of such a       potential to motivate consumers to
tax could be problematic: A tax on       consume less sugar sweetened bev-
sugar sweetened beverages could,         erages. At the same time it can be
for example, have a regressive effect,   an incentive for the industry to re-
meaning it could affect low wage         duce the sugar content in bevera-
earners more than higher income          ges. In the long term, it can lead to
brackets. In that context it must be     healthier diets and weight stabiliz-

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