Tamnasera Agricultural PLC

Avocado Production

Farm & Oil Processing Plant

Project Preparation for Grant Fund Request

Submitted
to

Giz
July/2023
 Table of Contents

1. Executive Summary 1
2. Product Description and Application....................................................1
3. Market Study, Plant Capacity and Production Program...................1
3.1 Market Study ---------------------------------------------------------------------------- 1
3.1.1 Present Demand and Supply ----------------------------------------------------- 1
3.1.2 Projected Demand ----------------------------------------------------------------- 2
3.1.3 Pricing and Distribution----------------------------------------------------------- 3
3.2 Plant Capacity - --------------------------------------------------------------------------3
3.3 Production Program ---------------------------------------------------------------------3
4. Raw Materials and Utilities....................................................................4
4.1 Availability and Source of Raw Materials 4
4.2 Annual Requirement and Cost of Raw Materials and Utilities 4
5. Location and Site.....................................................................................5
6. Technology and Engineering.................................................................5
6.1 Production Process ---------------------------------------------------------------------- 5
6.2 Machinery and Equipment ------------------------------------------------------------- 6
6.3 Civil Engineering Cost ----------------------------------------------------------------- 6
7. Human Resource and Training Requirement......................................7
7.1 Human Resource ------------------------------------------------------------------------ 7
7.2 Training Requirement ------------------------------------------------------------------ 7
8. Financial Analysis...................................................................................8
8.1 Underlying Assumption ----------------------------------------------------------------8
8.2 Investment -------------------------------------------------------------------------------- 9
8.3 Production Costs -------------------------------------------------------------------------9
8.4 Financial Evaluation ------------------------------------------------------------------ 10
9. Economic and Social Benefit and Justification..................................11
ANNEXES....................................................................................................13
SECTION A: EXECUTIVE SUMMARY
1. Executive Summary
This project envisages the production of 1000000 Hass Avocado seedlings to be distributed to
50,000 Smallholder Farmers, the establishment of 25 lands of Ha of Hass Avocado, and an Oil
processing plant on a 20,000 sq. area. The total investment requirement of the project including
the working capital is estimated at Birr 150 million; of which Birr 45 million is for machinery
and equipment Birr 70 million is the pre-production cost while Birr 35 million is the cost of the
working capital. Based on the cash flow statement, the calculated internal rate of return (IRR)
and simple rate of return (SRR) of the project are 17.5 % and 101.4 %, respectively. The net
present value (NPV) at an 18 % discounting rate is about Birr 2643 thousand. The plant is
expected to create employment opportunities for about 250 persons excluding the 50,000
Farmers.
SECTION B: PROJECT DESCRIPTION AND CONTENTS

2.1 ORGANIZATIONAL BACKGROUND

The ‘’Tamnasera Agricultural PLC’’ invested on the establishment of an Avocado farm and oil
processing plant at Southern Nation and Nationalities People Regional State, Gurage Zone,
Cheha Woreda by acquiring investment land 52 hectares and investing a capital investment of
203.895 million birr in January/2018. The company has three-year-old 50-ha avocado crops
with 1ha of Hass Avocado seedling production orchard of commercial nursery and has an out-
grower of 50,000 smallholders in Gurge zone (Cheha, Ezha and Enomer woreda) and adjacent
zone Hadiya & Silte zone and Yem Special woreda in SNNPRs and West Oromia area as a cash
crop value chains involving to transformation in partnership with the company operation.
It will aim at working with those farming households, to provide 200 Hass seedlings for each
smallholder avocado farmer, a total of 1,000,000 seedlings per year for 5,0000 households to
cultivate 2.4ha in five years per household, to reach the production of avocado fruit about
48,077 tons per year after five years and supply to the company through market linkage.
The company planned to establish APC (Agricultural Product Processing Center) plant at Cheha
woreda, raw avocado fruits are harvested from the company farm and collected from the out-

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growers, for Complete fresh fruit processing as effectively as possible Sorting, Washing &
Convenience Processes, Packing, Storage and Shimmering, 90% for export and 10% for
domestic market. Further, the company will start value addition of avocado oil processing.
The company also planned to have a better PRICE goal, which is to raise smallholder farmers’
income. To achieve this, the company’s development objective is to promote sustainable
increased returns to farmers from key export-driven avocado value chains through increased
volumes and quality of production, improved marketing, and effective farmer-out-grower
market linkage.

2.2 Problem definition

As stated in the project feasibility study section there is a great need for increased food security
in Ethiopia and horticulture production can be part of solving this problem. Research also shows
that post-harvest losses contribute to undernourishment and food insecurity in developing
countries. The losses occur within the supply chain due to limited resources such as post-harvest
technology, knowledge, and APC infrastructure. The supply chains for horticulture a product of
avocado is more complex as they are perishable products and depend on high yield parties.

Ethiopia is the second-largest producer of avocados in sub-Saharan Africa. However, the

avocado sector in Ethiopia is still in its infancy and most of the avocados are exported in an
unprocessed form or sold on the local market, which generates little added value – such as
income – domestically. Hence, avocado fruit can apart from increasing food security also be an
opportunity to increase the income for small-holder farmers.

However, high post-harvest losses, a lack of quality seeds, and low mechanization represent
challenges for producers. Furthermore, many of them do not have access to premium markets
as their harvests often do not meet the high standards needed for the international market.
Rectifying this situation would allow them to generate higher incomes than before
To improve smallholder farmers’ productivity and upgrade a supply chain, with emphasis on
improved avocado seedling supply to reduce post-harvest losses, both the activities and factors
mentioned above need to be taken into consideration.

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Furthermore upgrading can aim for the most suitable markets and trading partners within the
supply chain to the company through creating the network infrastructure structure (supplying
input, post-harvest handling materials, and transporting) and allowing the APC (agricultural
Product Processing Center) their product processing for the export market.
Finally, the proposed grant fund request will include a capacity development component
including training on avocado production, harvesting, and marketing as the key partner issue of
the smallholder avocado producers.

2.3 Project objectives: Overall and specific objectives

The overall goal of this project is to provide improved Hass avocado seedlings that can be used
to improve the smallholder avocado farm production and productivity conditions prevalent in the
out-grower farmers at Gurge zone (Cheha, Ezha, and Enomer woreda) and adjacent zone Hadiya
& Silte zone and Yem Special woreda in SNNPRs and West Oromia area. The distribution and
utilization of Hass avocado seedlings are needed for better food security and sustainable
productivity to develop the new most popular East African avocado for export market in Europe
and other countries.
This will eventually improve the productivity of avocados in the targeted out-grows area,
increase the livelihood of low-income communities and resource-poor farmers, and contribute to
food security for smallholder farmers. In addition, the proposed study aims to enhance the
current capacities of Hass avocado production, promote partnerships and participation, and
ensure knowledge sharing with the company out-growers area.
The project-specific objectives are:
1- By Providing Hass avocado improved seedlings to solve the bottleneck of production and
market
2- To provide capacity building on avocado cultivation, production postharvest handling, and
market linkage
3- To supply farm input and post-harvest equipment
4- To provide training courses in targeted groups.
5- Providing Market Access

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 2. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

Avocados are a nutrient-dense food that provides relatively many health benefits that include
abundant nutrients (vitamins C, B5, B6, E, and K), potassium, folate, protein, and healthy fats.
Seven of the nine grams of carbohydrates in a 100-gram serving are fiber, qualifying avocados as
a low-carb food. The daily consumption of Hass avocado as part of a hypocaloric diet supports
weight loss and helps to increase gut bacteria. An increased interest in plant-based and low-
carbohydrate clean eating diets, such as the keto diet and paleo diet, also contributed to the
increased demand for Hass avocados.
According to the Hass Avocado Board, the retail sales of fresh Hass avocados remained above
the pre-pandemic levels of 2019 during the second quarter holidays of 2021, while Y-o-Y sales
softened. The Hass Avocado Board’s (HAB) published retail recap indicated sales volume
during Easter, Cinco De Mayo, and Memorial Day accounted for a combined 133 million units
and nearly USD 160 million in retail sales.
Avocado has become a favorite ingredient in many dishes (guacamole dip, salads, and
sandwiches) and is now on the menu of several restaurants across the United States. The
Avocado toast, a humble breakfast that was earlier eaten mainly in California and Australia, is
now a trendy menu item in many restaurants around the world. According to the USDA, US
demand for avocados has increased steadily over the past two decades.

Within the avocado trade, the Hass variety is slowly taking over in the European market. The
European market has the potential for expansion for the Hass variety. Avocados have a high
market demand due to their nutritious nature and many applications. In the supermarket channel,
the popular one is Class I Hass avocados. This main segment mostly concerns the Hass variety
with standard retail requirements with certification and low pesticide residues.

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Europe is dominated by Peruvian producers with an abundant supply of Hass avocados during
summer. In the European winter, in Spain, Chile, Mexico, and Israel, Hass avocado dominates
the market. Hass avocados are most in-demand in Europe due to their excellent ripening
characteristics.
Hass avocados grown organically are especially popular in Germany. Avocados that are ready to
eat are particularly popular in end markets that have a strong demand for convenience foods,
such as northern Europe. The major Hass avocado end markets are France and the United
Kingdom, with the Netherlands and Scandinavian nations having the greatest per capita
consumption.
In March 2022, The Hass Avocado Board (HAB) unveiled a new Avocado Growth eToolkit. The
new e-commerce guide is designed to help avocado marketers and retailers get the most out of
their online grocery presence in response to explosive category growth over the past two years.
Mission Produce, Inc., the world leader in sourcing, producing, and distributing fresh Hass
avocados, opened its new mega center in Laredo, Texas in September 2021. The city has
received a total investment of almost $120 million for this. It is the 12th distribution center in
Laredo to improve access and supply chain potential to supply avocados in North America.
In 2021, the Association of Avocado Producers and Packers of Mexico (APEAM), the
Association of Producers of Avocado Exporters of Jalisco (APEAJAL), and the National Service
of Agri-Food Health, Safety and Quality (SENASICA) entered into the agreement that will allow
the import of fresh Hass avocados from Mexico to expand and will operate under the
Cooperative Service Agreement between the USDA-Animal and Plant Health Inspection Service
and APEAM.

3.1.2 Projected Demand

The future demand for Hass Avocado is promising due to two main factors in the domestic
market. First, an increase in population in general and urbanization in particular is expected to
amplify the domestic consumption of the Avocado. At the same time, globally an increase in the
benfits and uses of Avocado inevitably improves the per capita consumption of Avocado in the
future. Consequently, with a conservative growth rate of 15 % per annum, the future demand for
Avocado is forecasted as shown in Table 3.1 below.

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 TABLE 3.1
DEMAND PROJECTION FOR APPLE
IN (TONS)

Year E.C At National Level

2010 524
2011 550
2012 578
2013 607
2014 637
2015 669
2016 702
2017 737
2018 854

Table 3.1 shows that there is a substantial and growing demand for Avocados in the coming
years. At the same time, it suggests the relevance of establishing an Avocado plantation to meet
the current and future demand from local sources.

3.1.3 Pricing and Distribution

Based on the market research result and the cost of the envisaged plantation, the selling price of a
kilogram of Avocado is set to be Birr 150 for Exporters and 500 Birr (10 USD0 if exported). In
distributing the output, the envisaged plant shall make use of the available sales network and
establish at least 6 collection centers to receive products from the out growers which took
seedlings from the project. The FDRE government is also supportive in producing Avocado for
export. The project will produce one Hass avocado Seedling at a price of 80 Birr and sale to the
farmers at a price of 100 Birr.

3.2 Plant Capacity

Thus, given the expected demand for Avocado as presented earlier, and the planned farm
technology, the envisaged plantation plans to produce 1,000,000 Hass Avocado seedlings and
distribute to 50,000 Farmers per annum on 10 hectares of land in the 1 st year. This will continue
till maximum number of Farmers is reached. At the same time 25 Ha of land will be covered
with Hass Avocado plantation (that will be 50,000 plants). Avocado fruit will be started to be
exported and processed in the 3 rd year. This Avocado fruit will be from own production and
supplied from out growers through the established collecting centers. Those fruits which fits to

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be exported will be sold to exporters or self-exported. Those 1fruits that does not fit to the export
standard will be processed for oil extraction for the national market. Agricultural Processing
Center will be established in Gubrie area of Cheha woreda of the Guragie zone in SNNPR,
Ethiopia.

3.3 Production Program

During the first two years, production is 0 % of the plantation capacity. In the third year and
fourth years, there will be production at 20 % and 25 % of the plantation capacity. Starting from
the sixth year, 100 % of the plantation capacity is assumed. The capacity builds up is established
by considering the time required for maturity of the tree and fruit harvesting.

3. Raw Materials and Utilities

3.1 Availability and Source of Raw Materials

Trellis material tape and twine, free training material, mulching material, compost ( fertilizer),
chemicals, beehives for cross pollination are required for the process of apple production which
are available locally. The only material that is not locally available in sufficient quantity and
quality is Avocado tree seedlings. Therefore, producing ample amount and quality of seedling is
critical need in expanding the Avocado value chain

3.2 Annual Requirement and Cost of Raw Materials and Utilities

Raw material for requirement for a full capacity single shift operation of the plant and the
corresponding cost estimates are given in Table 4.1.

TABLE 4.1
RAW MATERIALS REQUIREMENT

Total Cost inETB

Material and Input Quantity L.C. F.C.
Fertilizer (Compost) 90,000 Kg 5,000,000
Chemicals 1875 Kg 5,000,000
Seeds 200,000 KG 40,000,000
Total Material Cost

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 Utility
Electricity 100,000KWH 2,500,000
Furnace Oil 40,000 liters 1,500,000

Water 50,000m3 1,000,000 18,000,000

Total Utility Cost

According to the above table the annual cost of input and utility is estimated to be Birr
55,000,000.

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 4. Location and Site
For its good environment to produce Avocado, Guragie Zone is an appropriate choice for the
establishment of Avocado production farm in the SNNPR region. However, the produced
seedlings will be distributed to Cheha, Enemor, Gumer, Eaza, Silte, Hadiya and Kembata areas
of SNNPR region and Woliso zuria areas of Oromia region. The essdling production and
Avocado farm establishment site will be in Cheha woreda in Gura megenasie area where 52 Ha
of Land is secured and a Borehole (ground water supply ) has been constructed for this purpose.

5. Technology and Engineering

5.1 Production Process

Avocado tree growing can be rewarding for both small scale farmers as well as commercial
growers. Several factors are important to be considered for a successful Avocado production.
Avocado variety and root stock, site selection, proper planting, training and pruning and grafting,
adequate fertility, and pest control contribute to healthy and productive trees.
Land should be well prepared for planting the apple trees. Well-drained, sandy loam with a PH
below 6.5 is best. Finer-textured-loamy clay soils will suffice if they are well drained. Hot
midland to moderate lowland will be suitable production area for Avocado growing.

One year old nursery trees with good root systems will be ready. To plant the avocado trees, first
dig a ditch 60 cm deep and sufficiently wide for the diameter of the root system. Place some of
the loose soil back in to the hole and loosen the soil on the wall of the planting hole so that the
roots can easily penetrate the soil. Spread the roots to protect shallow root damages. As you
cover the roots press and make firm the soil to be sure it surrounds the roots and to remove air
pockets. Good sanitation practices are necessary to control pest problems. Do not add fertilizer at
planting time as the root can be burned. When you have finished planting the tree, water well to
eliminate air pockets and provide good contact between the roots and the soil.

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Good quality irrigation water should be available for moisture stress period. Fencing the site is
advisable to protect from animal damage. Avocado trees require full sun and big trees shade
should be avoided.
Avocado trees requires pruning/grafting for better and faster production. Proper training and
pruning/grafting of fruit trees is essential to the development of a strong tree framework that will
support seasonal fruit production in batches for a consistent supply of Avocado fruits to the
global and national costumers. Properly shaped trees will yield high quality fruit much sooner
and will live significantly longer. Regular pruning/grafting and training will also maximize light
penetration to the developing flower buds and fruits. Avocado trees often set a heavier crop of
fruits than the branch (limbs) can withstand. To ensure good fruit size, to return bloom for the
following year, and to prevent tree breakage, it is necessary to thin the fruit. Adequate tree
nutrition is essential for quality Avocado production. To maintain the required level of nutrition
status, the project will follow the fertilization guidelines provided by the soil test.

Controlling weeds and grasses around young apple trees minimizes competition for soil nutrients
and moisture, encourages vigorous tree growth and increases fruit size. Avoid mechanical weed
cultivation. Diseases and insects can cause serious damage to Avocado trees and fruits. A regular
spray program is essential for high fruit quality and healthy trees.
Hass Avocado reach maturity at the 3rd year. When Avocado fruits’ skin color changes from
green to black purple it indicates maturity and it will be fleshy pleasant cream taste. Proper
storage conditions help to prolong the shelf-life apple. Depending on the conditions of storage,
Avocado can be stored up to 3 months.

5.2 Machinery and Equipment

Basically, the planting and harvesting of Avocado do not require much machinery and
equipment. Tractor is used while preparing the land for the first planting period and therefore,
the envisaged plantation shall use a tractor while preparing the land. The plant however, needs to
acquire a permanent water supplies which is already in place as a borehole. In addition, small
agricultural tools such spade, rakes, disks, auger, mower, sprayers, wheelbarrows vacuumed
vehicle for fruit collection, sorting materials, washing and grading materials, Fruit crashing and

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oil extractors, packaging’s and etc. are required. The cost of the machinery and equipment is
estimated to be Birr 35 Million.
Civil Engineering Cost

The envisaged Avocado oil processing plantation requires 15000-20000sq.m of land only. And
this is obtained from land from the local government at a rate of Birr 200 per/sq. per year. This
rate is the average rent for rural land of Guragie zone. Therefore, APC will be constructed for the
oil extraction, export fruit sorting, washing, grading and packing at estimated cost of 27 Million
ETB

6. Human Resource and Training Requirement

6.1 Human Resource

Details of the manpower requirement of the plant is shown in Table 7.1

TABLE 7.1
MANPOWER REQUIREMENT

No. Monthly Total Annual

Position Required Salary Salary in ETB
Executive Manager 1 150,000 1,800,000
Manager/Agronomist/Forester 1 120,000 1,440,000
Business Administrator 1 120,000 1,440,000
Extension and nursery experts 4 30, 000 1440000
Technical staff in the APC 10 30,000 3600000
Personnel Officer 1 20000 240000
Accountant/Casher 1 25,000 300000
Store Keeper 1 16000 192000
Supervisor 2 17500 420000
Driver 3 12000 432000
Laborers 75 6000 5400000
Guards 8 7500 720000
Benefit (20%) 3484800
Total 36 20,908,800

The total annual wages and salary, including 20 % benefits, amount to Birr 20,908,800.

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 6.2 Training Requirement

On job training of personnel shall be conducted with the aim of production technology. In
addition farmers will be trained in agronomic practices of Avocado from seedling production to
post harvest handling and marketing. The Farmers will be linked to the global export market
through the project.

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 7. Financial Analysis
7.1 Underlying Assumption

The financial analysis of Apple Production Farm is based on the data provided in the preceding
chapters and the following assumptions.

A. Construction and Finance

Land Preparation Period 6 months

30 % Equity and 60 %
Source of Finance grant/Loan/
Tax Holidays 2 Years
Bank Interest Rate 12 %
Discount for Cash Flow 20 %
Based on Land Rent Rate of
Value of Land SNNPR
Spare Parts, Repair & Maintenance 3 % of the Fixed Investment

B. Depreciation

Building 15%
Machinery and Equipment 20%
Office Furniture 5%
Vehicles 10%
Pre-Production (Amortization) 50%

C. Working Capital (Minimum Days of Coverage)

Spare Parts In Stock and Maintenance 30 Days

Accounts Receivable 30 Days
Cash In Hand 30 Days
Accounts Payable 30 Days

7.2 Investment

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The total investment cost of the project including working capital is estimated at Birr 1 million as
shown in Table 8.1 below. The owner shall contribute 40 % of the finance in the form of equity
while the remaining 60 % is to be financed by bank loan.

TABLE 8.1
TOTAL INITIAL INVESTMENT

Items L.C F.C Total

Land
0 0
Building and Civil Works
27,500,000 27,500,000
Office Equipment
7,000,000 7,000,000
Vehicles
25,000,000 25,000,000
Plant Machinery & Equipment
35,000,000 0 35,000,000
Total Fixed Investment Cost
94,500,000 94,500,000
Pre Production Capital
Expenditure* 55,000,000 0 55,000,000
Total Initial Investment
149,500,000 149,500,000
Working Capital at Full Capacity 25,908, 800 25,908,800
Total 175,408,800 0 175,408,800

7.3 Financial Evaluation

I. Profitability
According to the projected income statement (See Annex 4) the project will generate profit
beginning from the 3rd year after plantation (the first year of production) and increases on wards.
The income statement and other profitability indicators also show that the project is viable.

II. Breakeven Analysis

The breakeven point of the projects is given by the formula:

BEP = Fixed Cost

Sale –Variable Cost at full capacity.

The project will break even at 14 % of capacity utilization

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Therefore, the total project cost is 175,408,800 from this:
25,408,800 ETB equivalents to Euro 427,397.81 will be contributed from the PLC as fixed assets
and the borehole constructed.
It is requesting your good organization the rest 150,000,000 ETB equivalent to 2,523,128.68
Euro at an exchange rate of 1Euro to 59.45 ETB.

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 III. Payback Period
Investment cost and income statement projection are used in estimating the project payback
period. The project will payback fully the initial investment less working capital in 6 years after
plantation.

IV. Simple Rate of Return

The project’s simple rate of return (SRR) is given by the formula:

SRR= (Net Profit + Interest)/ (Total Investment Outlay) at full capacity utilization.

The SRR would be 101.4 % at full capacity utilization.

V. Internal Rate of Return and Net Present Value

Based on cash flow statement (See Annex 2) the calculated internal rate of return (IRR) of the
project is 17.5 %.
VI. Sensitivity Analysis
The sensitivity test result which undertaken by increasing the cost of production by 20 % still
indicates that the project would be viable.

8. Economic and Social Benefit and Justification

Based on the foregoing presentation and analysis, we can learn that the proposed project
possesses wide range of benefits that complement the financial feasibility obtained earlier. In
general, the envisaged project promotes the socio-economic goals and objectives stated in the
strategic plan of the FDRE and SNNPR Regional State. These benefits are listed as follows:

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A. Profit Generation

The project is found to be financially viable and earns on average a profit of Birr 12 million birr
per year and as it is a sustainable investment this profit will continue for years. Such result
induces the project promoters to reinvest the profit which, therefore, increases the investment
magnitude in the region.

B. Tax Revenue

In the project life under consideration, the region will collect about Birr 9.6 million from
corporate tax payment alone (i.e. including income tax, sales tax and VAT). Such result creates
additional fund for the regional government that will be used in expanding social and other basic
services in the region.

C. Import Substitution and Foreign Exchange Saving

As there this is an export-oriented crop production this will bring a huge amount of foreign
currency, the commencement of this project will also relieve a portion of the import burden for
oil.

D. Employment and Income Generation

The proposed project is expected to create employment opportunity to several citizens of the
country. That is, it will provide permanent employment to >125 professionals staff as well as
support more than 75 daily laborer stuffs.

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