The Palm Oil Value Chain: From Plantation to Global Markets

The palm oil value chain is the powerful network behind palm oil production. From rural and modern plantations to global markets, see how each link in the value chain drives economies, feeds industries, and connects millions through one of the world’s most super commodities.

The palm oil value chain covers the patient journey of crude palm oil, starting from the cultivation of the oil palm tree to the processing of oil palm fruits to end products. It includes cultivation, harvesting, processing, refining, and distribution.

The palm oil value chain connects farms, factories, and final products in a system that drives both local livelihoods and global industries.

If you’ve ever used cooking oil, shampoo, or packaged snacks, chances are palm oil was involved.

But what happens from the moment an oil palm fruit is harvested to when it appears in your kitchen or on store shelves?

Understanding this journey helps you see the impact of each step, from smallholder farms to large processing mills, and from exporters to global brands.

Along the way, issues like labor, sustainability, pricing, and quality control shape how palm oil is produced and traded.

This value chain not only supports millions of people worldwide but also plays a major role in the food, cosmetics, and biofuel industries.

Here’s how the palm oil value chain works.

Related: Numerous Benefits of Palm Oil

Main Points

  • The palm oil value chain begins with oil palm cultivation, from land prep to seedling transplanting, fueling the entire system of global food, fuel, and cosmetics industries.
  • Besides crude oil, the chain yields palm kernel oil and palm kernel cake, supporting food, cosmetics, and animal feed sectors with high-value by-products and reduced waste.
  • This value chain supports millions of jobs globally, impacting agriculture, manufacturing, and trade while influencing everyday products from snacks to soaps and biofuel.
  • Sustainability concerns influence palm oil marketing. RSPO certification boosts consumer trust, giving certified products an edge in environmentally conscious and competitive global markets.
  • Efficient logistics and export compliance ensure the timely delivery of palm oil products. Strong distribution networks connect plantations, refineries, and retailers across local and global markets.
  • By-products like EFB, POME, and kernel shells are repurposed into compost, biogas, and biomass, promoting circular economy practices and boosting environmental sustainability.

What is the Palm Oil Value Chain?

A local woman processing the palm oil fruits in Nigeria

The palm oil value chain is everything that happens from growing oil palm trees to getting palm oil into your hands.

You’re part of it whether you farm, trade, buy products, or use them daily. It starts on plantations, both rural and modern, where farmers harvest fresh fruit bunches.

These bunches go through either local or modern processing mills where palm oil is extracted, refined, and sent to factories.

From there, it’s turned into cooking oil, soaps, snacks, cosmetics, and biodiesel. Traders, distributors, retailers, and you help move it along.

This chain supports millions of jobs and connects local fields to global markets. You can’t ignore how it shapes food, energy, and everyday life.

Related: Common mistakes to avoid when harvesting oil palm fresh fruit bunches

The Oil Palm Tree: The Pillar of the Palm Oil Value Chain

The oil palm tree is the foundation of the palm oil value chain. Every part of the tree plays a significant role, contributing to the production of vital products like crude palm oil (CPO), red palm oil, refined palm oil, palm kernel oil, and palm kernel cake.

Even the fronds, often overlooked, serve as raw material for products like brooms. The oil palm tree’s comprehensive usefulness supports industries worldwide and drives economies in tropical regions.

Crude Palm Oil: The Heart of the Value Chain

Crude palm oil (CPO) is extracted from the fleshy mesocarp of the fruit and serves as the cornerstone of the palm oil industry.

It’s widely used in food products, cooking oils, cosmetics, and biofuels due to its stability, cost-effectiveness, and long shelf life.

The high yield of CPO supports large-scale plantations, which in turn fuel economic growth in palm oil-producing countries.

CPO is further refined into specialized oils for different industrial applications, enhancing its versatility. See an in-depth post on crude palm oil.

Red Palm Oil: Nutrient-Rich and Beneficial

Red palm oil, an unrefined version of palm oil, retains its natural reddish color and nutrient-rich profile, including carotenoids, vitamin E, and antioxidants.

These nutrients make it a preferred option for health-conscious consumers.

Red palm oil is especially beneficial in cooking as it preserves its nutritional content, offering a healthier alternative to more processed oils.

Its minimal processing ensures that it maintains its natural goodness, making it an important ingredient in natural and organic products. See a dedicated post on red palm oil.

Refined Palm Oil: Cleaner and More Versatile

Refined palm oil is produced by removing impurities from crude palm oil, resulting in a more neutral flavor and lighter color.

Its versatility makes it suitable for cooking, baking, and industrial food production. The oil can withstand high temperatures, making it ideal for frying and other food processes.

Beyond the food industry, refined palm oil is also used in cosmetics, soaps, and detergents due to its smooth texture and long shelf life, proving essential for various consumer goods. See a thorough guide on refined palm oil.

Palm Kernel Oil: Specialized for Unique Products

Palm kernel oil (PKO) is extracted from the hard seed inside the oil palm fruit. Its high saturated fat content makes it ideal for products like margarine, specialty fats, and confectionery.

PKO is also used in the production of soaps and personal care products, where its moisturizing properties contribute to a smoother texture.

The versatility of PKO allows it to be used in a wide range of applications, from food to beauty products, demonstrating the multi-faceted value of the oil palm tree. See the complete information on palm kernel oil.

Palm Kernel Cake: Sustainable By-Product

After extracting palm kernel oil, the remaining palm kernel cake (PKC) is a valuable by-product.

Packed with protein and fiber, PKC is used as animal feed, especially for livestock such as cattle, poultry, and pigs.

It offers a sustainable solution to waste and adds extra value to the oil palm industry by providing nutritious feed for the agricultural sector.

PKC enhances the efficiency of palm oil production, creating a circular system that reduces environmental impact.

Palm Fronds: Sustainable and Practical

Palm fronds, the large, compound leaves of the oil palm tree, are often discarded after harvesting the fruit, but they serve a practical purpose.

These fronds are commonly used in the production of brooms, a vital household and agricultural tool in many palm oil-producing regions.

By utilizing the fronds, the palm oil industry not only reduces waste but also supports local economies by providing affordable, natural cleaning tools.

The fronds’ use in brooms highlights the oil palm tree’s role as a sustainable resource beyond its oils.


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Upstream Activities in the Oil Palm Value Chain: Cultivation and Harvesting

You can’t talk about the palm oil value chain without starting at the root, literally. The upstream part of the value chain starts with land, seeds, and time.

What happens here decides the success of everything else. From preparing the soil to harvesting the fruit, your role in this early phase is what fuels the rest of the industry.

Land Preparation: Laying the Groundwork

Before anything grows, the land needs attention. You start by clearing the area and checking the soil.

You test for nutrients and acidity, then apply the right fertilizer to create a good growing base. It’s not guesswork, it’s a calculated effort to give oil palms what they need right from the start.

This stage also includes mapping out roads, drainage, and planting lines so your work remains efficient long-term.

Nursery and Transplanting: Raising Strong Seedlings

You don’t just plant and hope. First, you set up a nursery where selected seeds grow into healthy seedlings.

These aren’t just any seeds; they’re chosen for their high yield and how well they adapt to your climate.

After about 10 to 12 months of care, those seedlings are ready. You move them to the main field, and that’s when the real journey begins.

From here, they’ll grow into productive palms over the next few years.

Field Maintenance: Keeping Growth on Track

Once planted, the oil palms need regular care. You apply fertilizer when the soil needs a boost and keep pests in check with targeted treatments.

Pruning dead or overcrowded leaves helps light and air reach the fruiting zones.

These actions may seem routine, but they have a direct impact on the bunches your palms will produce later.

By staying consistent, you improve both the health of the trees and the quantity of fruit they yield.

Harvesting: Timing Matters

Your oil palms start producing fresh fruit bunches around year three or four.

You don’t harvest too early or too late; the right moment is when the fruit changes color and loosens from the bunch. With a sickle or chisel, you cut it cleanly and collect it fast.

Timing is everything. If the fruit sits too long before processing, the oil quality drops. That’s why you move it quickly to the mill, usually within the same day.

Midstream Processing in the Oil Palm Value Chain: From FFB to Oil

Refining stage in the palm oil value chain

At the midstream stage of the palm oil value chain, you’re not just handling fruit, you’re making oil. This is where fresh fruit bunches (FFB) become valuable products. From the moment they reach the mill, every move counts.

Each step, from sterilizing to pressing and cleaning, helps in the production of usable oils and by-products.

Your job is to get the most value with minimal waste, turning raw fruit into products that serve food, fuel, and farming markets.

Crude Palm Oil (CPO)

Crude palm oil is a core product in the oil palm value chain. You extract it from the mesocarp, the soft, fleshy part of the fruit, after sterilizing, stripping, and digesting the fresh fruit bunches.

Pressing releases the oil, which then goes through clarification to remove moisture and solids.

This raw form is the foundation for other products: red palm oil comes from minimal processing that retains carotenoids, while refined palm oil is made through deeper refining for cooking and industrial use.

CPO links the farm to both food and non-food industries, making it a vital output of midstream processing.

Red Palm Oil

Red palm oil comes from crude palm oil but keeps its natural nutrients because it goes through minimal refining.

Unlike fully refined palm oil, you process it gently to preserve beta-carotene and vitamin E, which give it the deep red color and health benefits.

In the oil palm value chain, red palm oil stands between crude and refined products. It’s used in traditional cooking, health supplements, and natural cosmetics.

Its rich nutrient profile and distinct color make it a preferred choice in markets that value natural, less-processed oils.

It also adds diversity to the palm oil product range, supporting both nutrition and commerce.

Refined Palm Oil

Refined palm oil is a key product in the midstream segment of the oil palm value chain. It begins with crude palm oil (CPO) from midstream processing.

You refine CPO to remove free fatty acids, odors, colors, and impurities. This involves degumming, neutralization, bleaching, and deodorization.

The result is a cleaner, longer-lasting oil suitable for household cooking, industrial frying, and processed foods.

From refined palm oil, you also get products like palm olein for frying and palm stearin for margarine and shortening.

Its versatility and wide applications make it one of the most demanded outputs in the entire palm oil supply chain.

Palm Kernel Oil (PKO)

Palm kernel oil is extracted from the seeds of the oil palm fruit. After sterilization and stripping of the fresh fruit bunches, you separate the kernels from the fleshy mesocarp.

The kernels are then crushed to release oil. Palm kernel oil has a higher saturated fat content than crude palm oil, making it ideal for applications like food products, cosmetics, and even biodiesel.

In the oil palm value chain, PKO serves as a valuable by-product alongside crude palm oil, contributing to the overall profitability of the industry.

It provides a diverse range of products for both edible and industrial markets.

Palm Kernel Cake

Palm kernel cake is a by-product of the oil extraction process from palm kernels. After the oil is extracted from the crushed kernels, the remaining solid material is palm kernel cake.

It’s high in fiber and protein, making it an excellent feed for livestock, especially in the poultry and dairy industries.

In the oil palm value chain, palm kernel cake is a key component that helps maximize the use of the oil palm, providing additional revenue streams.

It also serves in industrial applications, like in the production of biofuels and as an organic fertilizer in some regions.

Empty Fruit Bunches (EFB)

Empty fruit bunches (EFB) are the leftover remnants after the oil extraction process from fresh fruit bunches.

These fibrous bunches are typically discarded, but in the oil palm value chain, they play a valuable role.

EFB can be repurposed for various uses, such as organic mulch for soil improvement, which helps in preventing soil erosion and retaining moisture.

They are also used as a biomass fuel in power plants to generate energy, contributing to sustainable energy practices.

Additionally, EFB can be composted to create organic fertilizer, further reducing waste in the palm oil industry.

Palm Sludge Oil

Palm sludge oil is a by-product of the clarification process during crude palm oil (CPO) production.

It consists of residual oil and impurities that are separated during the cleaning of CPO. Although it’s not suitable for direct consumption, palm sludge oil is valuable in the oil palm value chain.

This oil can be further processed and used in industrial applications, including soap manufacturing, where it serves as a key ingredient.

It is also used in the production of biodiesel, contributing to sustainable energy solutions.

By repurposing palm sludge oil, the industry reduces waste and maximizes the use of each component from the palm fruit.

Downstream Activities in the Oil Palm Value Chain: Refining and Product Manufacturing

The downstream activities in the oil palm value chain are where crude palm oil (CPO) and its by-products are refined and transformed into usable products for various consumer markets.

This stage ensures that raw oils are processed to meet the specific needs of industries and consumers alike.

The refining process is typically divided into two categories: physical and chemical refining.

Physical refining removes free fatty acids using deodorization and bleaching, while chemical refining neutralizes acids and removes impurities through alkali treatment.

The method selected depends on the desired quality of the final product. Let’s take a closer look:

Fractionation: Separation of Olein and Stearin

A key process in refining is fractionation, which separates crude palm oil into two components: olein and stearin.

Olein, which remains liquid at room temperature, is mainly used in cooking oils, margarine, and dressings.

Stearin, which solidifies at lower temperatures, is used in products such as shortening, butter substitutes, and as a base in baked goods.

Fractionation allows manufacturers to cater to different consumer needs for both edible and non-edible applications.

This separation helps meet diverse demands for cooking, baking, and food preparation, while also serving as a base for other non-edible uses.

Use of Extracted Oils: Consumer Products from Palm Oil

The oils extracted during the midstream stage, both crude palm oil (CPO) and palm kernel oil (PKO), are widely used in various consumer products.

Refined palm oil finds applications in food production, such as in edible oils, margarine, and cooking fats.

It’s a popular ingredient in many packaged food items like snack foods, baked goods, and ready-to-eat meals due to its affordability and long shelf life.

Beyond food, palm oil derivatives are essential in personal care products, such as soaps, shampoos, moisturizers, and cosmetics.

Palm kernel oil, on the other hand, is commonly used in products like soap bars, candles, and cosmetics because of its high saturated fat content and stability.

Palm Oil in Non-Food Products

Palm oil isn’t limited to food applications. Its uses extend to non-food products like biodiesel, which plays a role in the renewable energy market.

Palm-based biodiesel is seen as a more sustainable alternative to fossil fuels, contributing to efforts in reducing carbon emissions.

Additionally, palm oil derivatives are used in cleaning products, detergents, and lubricants due to their chemical properties that provide a good balance of grease-cutting power and biodegradability.

Packaging in the Value Chain of Oil Palm

Palm olein, palm oil along the value chain of crude palm oil

Effective packaging is key in marketing palm oil products, whether for food, personal care, or non-edible uses.

Transparent labeling that highlights the source, quality, and sustainability of the oil can greatly influence consumer decisions.

As consumers become more environmentally conscious, emphasizing sustainable production practices is crucial.

Eco-friendly packaging that reflects responsible sourcing builds trust and loyalty, catering to the growing demand for high-quality, sustainable goods.

By using clear, informative labels and packaging materials that align with consumer values, manufacturers can strengthen their brand and meet the increasing demand for ethical palm oil products.

Marketing and Distribution in the Oil Palm Value Chain

Marketing and distribution of oil palm products is about more than just moving crude palm oil (CPO) from the plantation to the marketplace.

The process involves a series of steps to transform oil palm products into items that end consumers use daily.

These products range from cooking oils and margarine to cosmetics, soaps, and even biodiesel.

Products Reaching the Final Consumer

Palm oil derivatives make their way into a wide variety of products, including:

  • Cooking oils: Refined palm oil and palm olein are commonly used for frying and baking.
  • Margarine and shortening: Palm oil, often in the form of olein or stearin, is a primary ingredient in margarine and spreads.
  • Processed foods: Palm oil is used in snack foods, instant noodles, baked goods, and other processed items for its cost-effectiveness and long shelf life.
  • Cosmetics and personal care: Palm oil derivatives like stearic acid are used in soaps, shampoos, lotions, and cosmetics due to their moisturizing and emulsifying properties.
  • Biodiesel: Palm oil is also converted into biodiesel, a renewable energy source.

Market Dynamics

Several factors influence the marketing of these products, including sustainability concerns.

Certification schemes like the Roundtable on Sustainable Palm Oil (RSPO) are important because they guide how palm oil is marketed and distributed.

Consumers are increasingly looking for products made with sustainably sourced palm oil, and companies that can prove their commitment to sustainability often have a marketing advantage.

Price Factors and Competition

The price of palm oil products is determined by production levels, market demand, and global competition.

In many regions, palm oil competes with other vegetable oils like soybean or sunflower oil.

Market fluctuations, tariffs, and regulations can also impact pricing, particularly when it comes to global trade and export policies.

Logistics and Supply Chain

Effective logistics and distribution networks are essential for getting oil palm products to market.

From plantations to processing facilities and ultimately to retail outlets, maintaining an efficient supply chain ensures that products like cooking oil and soap reach consumers in a timely and cost-effective manner.

Distribution partners and logistics providers play a crucial role in this process, as do compliance with international export regulations, which can impact the cost and speed of distribution.

Building a Strong Distribution Network

The success of palm oil products in the marketplace depends on a robust distribution network.

Building relationships with distributors, retailers, and logistics providers ensures products get to market quickly and efficiently.

Whether your target market is local or global, understanding consumer preferences, export regulations, and global trends is key to maintaining a competitive edge in the palm oil product market.

Consumption Stage in the Palm Oil Value Chain

Margarine from palm oil - the consumption stage of the palm oil value chain

The consumption stage of the palm oil value chain has to do with its getting to targeted consumers and use across various industries.

For example, in the food industry, palm oil is a key ingredient in the production of cooking oil, margarine, and other snacks due to its reliability and low cost.

Also, the skincare and cosmetics industry relies on palm oil for products like soaps, shampoos, and lotions, benefiting from its moisturizing properties.

Palm oil is a key component in the biofuel industry, where it is processed into biodiesel to provide alternative energy sources that can cut down on dependence on fossil fuels.

Waste Management and By-Products Utilization in the Palm Oil Value Chain

The palm oil industry generates a range of by-products and waste materials, including empty fruit bunches (EFB), palm oil mill effluent (POME), and kernel shells.

Proper management of these waste products is not only crucial for reducing environmental impact but also plays a key role in enhancing sustainability and creating additional value within the industry.

Repurposing Empty Fruit Bunches (EFB)

EFB, the fibrous remnants after oil extraction, is often seen as waste, but it has great potential for reuse.

Rather than discarding EFB, many producers are turning them into useful resources.

One common repurposing method is converting them into organic compost, which benefits soil health and boosts agricultural productivity.

Additionally, technological advances allow EFB to be used as a renewable energy source through biomass energy generation, reducing reliance on fossil fuels.

Managing Palm Oil Mill Effluent (POME)

POME is a liquid waste with high organic content, which can contribute to pollution if not properly handled.

However, with effective treatment methods like anaerobic digestion, POME can be processed to mitigate its environmental impact.

This treatment not only reduces waste but also produces biogas, which can be used to generate energy. By transforming waste into power, this approach aligns with the principles of a circular economy.

Utilizing Kernel Shells

Kernel shells, another by-product of palm oil processing, are often overlooked but can be utilized in multiple ways.

These shells can be burned as biomass fuel for energy production, helping to meet the energy needs of palm oil mills.

Furthermore, their high fiber content makes them ideal for manufacturing composites and other materials.

By finding innovative uses for these shells, producers can further reduce waste while benefiting economically.

Supporting Sustainability with Circular Economy Practices

By effectively managing and repurposing waste, the palm oil industry can reduce its environmental footprint while generating new opportunities for economic growth.

These by-products not only contribute to a circular economy but also enhance the industry’s sustainability and long-term viability.

Sustainability and Certification Standards in the Oil Palm Value Chain

The oil palm value chain faces significant sustainability challenges, especially concerning deforestation and biodiversity loss.

As oil palm plantations expand, they often lead to the clearing of tropical forests.

This results in habitat destruction and contributes to climate change by releasing carbon stored in the forests.

Local communities are also impacted, losing access to vital resources and land.

Impact on the Value Chain

From planting and cultivation to processing and distribution, sustainability issues affect every stage of the oil palm value chain.

The growth of plantations can provide job opportunities and economic growth in rural areas, but can also lead to land disputes and unequal distribution of benefits.

It’s important for stakeholders to ensure that communities benefit fairly as the industry develops.

Certification Standards in the Value Chain

To tackle these issues, sustainability certifications such as the Roundtable on Sustainable Palm Oil (RSPO) have become vital within the oil palm value chain.

RSPO helps ensure that oil palm production across the value chain is responsible and sustainable. Certifications like the Indonesian Sustainable Palm Oil (ISPO) and Malaysian Sustainable

Palm Oil (MSPO) set specific standards for reducing environmental impact and ensuring the well-being of workers in the cultivation process.

Sustainable Practices Across the Chain

Sustainable practices within the oil palm value chain include integrating agroforestry techniques that combine palm oil cultivation with other crops, preserving biodiversity.

Precision agriculture can also be applied to increase crop yield and minimize resource usage.

By adhering to sustainability standards throughout the value chain, the industry can contribute to environmental and socio-economic improvements, benefitting both the planet and the communities involved.

Challenges in the Oil Palm Value Chain

If you’re involved in the oil palm value chain, you already know it comes with tough challenges. From farming to refining and selling palm oil products, every step has its roadblocks.

Dealing with Price Fluctuations

One of the biggest headaches in the oil palm value chain is unstable pricing. When global palm oil prices swing, it affects your entire operation.

If you’re a smallholder, these shifts can make it hard to plan or secure a steady income.

The reasons vary: changing demand, global politics, or competition from other vegetable oils like soybean or sunflower. It becomes harder to budget or invest in better tools or farm inputs.

Land Use and Community Tensions

Another challenge in the value chain of oil palm is that land disputes, especially in areas where palm oil plantations compete with local or indigenous land rights.

As plantations expand, some communities lose access to the land they depend on. If you don’t handle these disputes well, it can stall your operations or lead to backlash.

Environmental Pressures

The link between palm oil and deforestation draws global attention. If your practices aren’t seen as sustainable, you could lose buyers, especially in export markets where eco-certifications matter.

Regulations around sustainable sourcing and land use are growing stricter, and meeting those expectations is becoming a standard part of doing business.

Labor and Inclusion Gaps

Smallholder farmers like you might also feel left behind. Without access to credit, quality seedlings, or training, it’s harder to improve your harvest or join larger supply networks.

There’s also the issue of labor rights and fair wages across plantations, which affects how the entire industry is viewed.

Technology and Infrastructure Gaps

In many regions, palm oil processing still relies on outdated tools. If you’re working with low-efficiency machines or poor road access, your costs go up, and quality may drop.

New processing technologies and better transport can help, but only if you can afford them or get the right support.

Future Outlook and Opportunities in the Oil Palm Value Chain

The oil palm value chain is evolving fast. From farming to processing to product development, every stage is seeing new tools and smarter systems.

Precision agriculture, AI-powered traceability, and cleaner processing methods are helping reduce waste and improve efficiency.

For producers and processors, these innovations offer better yields and lower costs. For consumers, the demand for sustainably sourced palm oil is reshaping global markets.

Certifications like RSPO and national schemes such as ISPO and MSPO are no longer optional—they’re becoming entry points into global trade.

Governments and private investors are also backing innovation, infrastructure, and training to boost sustainability across the chain.

As awareness around ethical sourcing and climate impact grows, everyone, from the smallholder to the end consumer, plays a role in shaping a palm oil industry that’s cleaner, smarter, and ready for the future.

Frequently Asked Questions

What is the palm oil value chain?

The oil palm value chain refers to the entire process, from cultivation, harvesting, and processing, to the production and distribution of palm oil products globally.

What are the main stages of the chain?

The chain includes cultivation, harvesting, processing, refining, distribution, and final product manufacturing. Each step adds value and connects global supply networks.

What products are made from palm oil?

Palm oil is used in cooking oils, margarine, processed foods, cosmetics, soaps, and even biodiesel, making it a versatile ingredient across multiple industries.

How does sustainability impact the palm oil industry?

Sustainability efforts like RSPO certification ensure responsible sourcing, reducing deforestation and promoting eco-friendly practices, ultimately improving the environmental and social footprint of the palm oil value chain.

What are the challenges in the palm oil value chain?

Challenges include price fluctuations, land disputes, environmental concerns, labor rights issues, and technological gaps, which affect production, pricing, and sustainable practices across the entire value chain.

Final Word from PalmOil Pathway

The palm oil value chain is a complex network that begins with oil palm cultivation and ends in the everyday products we rely on.

From the careful nurturing of seedlings to the sophisticated processing and global distribution, every stage is crucial.

Palm oil supports numerous industries, including food, cosmetics, and biofuels, influencing products found in homes and businesses worldwide.

As sustainability and ethical practices become increasingly important, certifications like RSPO and innovations in waste management and logistics are helping the industry adapt.

Despite challenges like price volatility and land disputes, the future of the palm oil value chain looks promising.

With continuous improvements, it can support economic growth while ensuring environmental responsibility and social equity.

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