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Posts Tagged ‘George Orwell’

Capitalism and the price of chocolate

1 March 2015 2 comments

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From a previous blogpost published on 4 July 2013, in The Daily Blog

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The Price of Cocoa (2013)

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Three cans of cocoa tell an interesting story.

Can A is the oldest, with an expiry date of April 2011. The can measures 110mm (H) x 75mm (D). It contained 200g net dry cocoa powder.

We purchased Can B sometime  in 2011 (?). The expiry date was March 2012, so it’s the second oldest can.

Interestingly, it also contained 200g net dry cocoa powder. However,   whilst the contents remained the same as Can A – the dimensions of the can inexplicably increased; 130mm (H) x 75mm (D). Same diameter as Can A – but 20mm taller. Contents remain the same net weight.

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KONICA MINOLTA DIGITAL CAMERA

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A month ago we purchased Can C (expiry date, March 2015). The dimensions of this can is the same as Can B: 130mm (H) x 75mm (D). But this time, the contents decreased from 200 to 190g net dry cocoa powder. Ten grams less.

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KONICA MINOLTA DIGITAL CAMERA

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So the up-shot? The can-sizes have gotten bigger – whilst the contents has reduced by 5%.

On 9 June, I emailed Nestle to find out what was going on,

Kia ora,

It has recently come to my attention that two cans of Nestle Baking Cocoa measure 110mm X 75mm, whilst the other measures 130mm x 75mm.

Both contain 200g net  cocoa powder.

The smaller can measuring 110 x 75 has a “best before” date April 2011.

The larger can, 130×75 has a “best before” date March 2012.

It appears that you have increased the SIZE of the can, whilst the contents remain the same.

Is there a reason why the size of the cans  was increased, by 20mm in height?

And can you confirm that the price stayed the same; increased; or reduced; when the change was made from a 110mm height to 130mm height?

(The email was sent prior to purchasing Can C.)

Perhaps not surprisingly, I received no reply from Nestle. [Blogger’s note: I never received any reply from Nestle.]

Unfortunately, I never retained the receipts for Cans A and B, otherwise I could compare prices. But what’s the bet that the retail price probably increased?

And thus it came to pass…

“As short a time ago as February, the Ministry of Plenty had issued a promise (a “categorical pledge” were the official words) that there would be no reduction of the chocolate ration during 1984. Actually, as Winston was aware, the chocolate ration was to be reduced from thirty grams to twenty at the end of the present week. All that was needed was to substitute for the original promise a warning that it would probably be necessary to reduce the ration at some time in April.” – George Orwell,  ‘1984’

Doubleplusgood!

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The Price of Chocolate (2015)

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A recent story in the media caught my attention;

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Cadbury blocks get the chop

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The unattributed Fairfax article further stated,

Amanda Banfield, managing director of Australasia for Mondelez International, the parent company that owns Cadbury, said she expected a backlash.

[…]

She pointed to rising packaging costs and a lift in the price of raw materials.

The main ingredients are cocoa, sugar and milk.

So let’s have a look at the prices of raw ingredients.

Sugar.

This commodity dropped in price from NZ$0.22  per pound, in July 2014, to NZ$0.20 per pound, by January of this year, according to IndexMundi.com;

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price of sugar - 7 months

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Over the last year, the price of sugar increased, peaking in July last year, before falling back;

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price of sugar - 12 months

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But taken over a five year period, look at how the price of sugar has dropped dramatically;

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price of sugar - 5 years

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So the rationale for Cadbury’s decision to de facto increase their prices cannot be blamed on sugar, which is cheaper now than it was, five years ago.

Let’s have a look at cocoa (beans) – and a similar story unfolds;

Six months – a 3.95% increase;

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price of cocoa beans - 6 months

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Twelve months – a 12.26% increase;

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price of cocoa beans - 12 months

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However – over 5 years – a 21.06% drop in price;

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price of cocoa beans - 5 years

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It would be interesting to note if when the price of cocoa beans collapsed to NZ$2,601.96 per metric ton, in March 2013, did the price of a Cadbury’s bar of chocolate increase in size? Or fall in price?

As for the price of packaging, this would be based on a local commodity (paper and ink) and if  New Zealand’s low inflation is anything to go by (an average of 2.7% pa since 2000), would not be much of a factor in pricing. With the exception of four Quarters around late 2010 to mid-2011, inflation has remained at or below 2%, a fallout from the 2008 Global Financial Crisis and ongoing recessionary/low-growth influences;

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trading economics - inflation 2010 - 2014 nz

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So with commodity prices for sugar and cocoa beans lower now than five years ago, and with low inflation, what other cause  could there be for the de facto price price of Cadbury’s chocolate bars?

Perhaps the answer lies with Kraft’s acquisition of Cadburys  for  £11.5 billion (US$18.9 billion) in 2010. Kraft financed the take-over deal by  borrowing a massive  £7 billion (US$11.5 billion) to finance the deal.

However, the New Zealand branch of Cadbury’s did not return a profit to it’s parent company (Mondelez International) until three years later, when it paid a dividend of NZ$40 million to its parent company, Mondelez.

According to  statements, Cadbury NZ’s profit  tripled to $11.6 million, from $3.5 million a year earlier, even as costs fell by  2.3%.

So despite falling costs, and increased profits, Cadbury NZ was struggling to make dividend payments to it’s parent company, and meanwhile Kraft was committed to servicing a £7 billion (US$11.5 billion) loan which had financed the acquisition in 2010.

The reduction in Cadbury’s chocolate bars can therefore be attributed to Kraft’s indebtedness rather than the official company line of increased costs. Unless Cadbury is lying in it’s financial statements, their costs have actually fallen, not increased.

As with many corporate takeovers, the benefits do not necessarily accrue to the public. The number one beneficiary is almost always shareholders, and consumers come a poor second (or third, or fourth…).

In this case, reducing the size of Cadbury chocolate bars by 20% is equivalent to a price increase, and Kraft’s shareholders will reap the rewards of increased profits.

Not exactly a sweet deal for New Zealand consumers.

Postscript

On 15 February, I contacted Statistics NZ, to enquire how SNZ views reduction in product sizes, whilst retail prices remain the same, in it’s calculation of the Consumer Price Index (CPI).

Dave Lum, from Statistics NZ replied;

The CPI measures price change in a “fixed” basket of goods and services, which means that we aim to measure price change based on quality being constant. In an instance where the quality (in your example, the weight/size) of an item changes, we show a price adjustment to account for the fact that the quality of the item has changed.

 As an example, if the size of a can of beans goes from 300g to 330g for the same price, this is shown as a price decrease for that item in the CPI. Likewise, if the can of beans went from 300g to 250g for the same price, it would be represented as a price increase.

So according to Mr Lum, Cadbury’s “switcheroo” with product sizes, will not materially distort CPI price measures.

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References

Fairfax media:  Cadbury blocks get the chop

IndexMundi.com: Sugar Futures End of Day Settlement Price (6 months)

IndexMundi.com: Sugar Futures End of Day Settlement Price (12 months)

IndexMundi.com: Sugar Futures End of Day Settlement Price (5 years)

IndexMundi.com: Cocoa beans Monthly Price – New Zealand Dollar per Metric Ton (6 months)

IndexMundi.com: Cocoa beans Monthly Price – New Zealand Dollar per Metric Ton (12 months)

IndexMundi.com: Cocoa beans Monthly Price – New Zealand Dollar per Metric Ton (5 years)

Reserve Bank: Inflation 1990-2014

Trading Economics: Inflation 2010 – 2015

NBR: Kraft Foods (NZ) pays $40m dividend to parent Mondelez

Wikipedia: Acquisition by Kraft Foods

This blogpost was first published on The Daily Blog on 24 February 2015.

 

 

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It is 1984. It is ALWAYS 1984…

23 February 2013 6 comments

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surveillance2

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First, the Labour government introduced the Terrorism Suppression Act 2002. This law could outlaw an organisation and declare them a “terrorist groups”.

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Facts about Terrorism Suppression Act

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Some see  Greenpeace as a terrorist organisation.

Ten years later, and National enacted the Search and Surveillance Act 2012. This law allowed the Police to search or keep citizens under surveillance, without a warrant. The Police simply had to show it was an “emergency”.

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More surveillance powers for Govt and police

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This law  allows  Police to keep someone under surveillance and search their home if they are a political dissident/protestor.

Or maybe I’m being overly dramatic?

After all, Police wouldn’t be interested in people exercising their democratic right to protest.

Right?

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Police software mines social media

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Eventually, though, the gradual demise of our privacy impacts on all of us. Even for those within the Establishment, who originally thought it was a good idea.

After all, if you’ve done nothing wrong, you have nothing to fear.

Right?

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National Party boss alleges covert filming

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As mainstream media focus and reports endless stories about crime and violence, society becomes more frightened of bogeymen just around the corner; or lurking behind bushes; or following us.

So we welcome any and all laws that successive governments give to the Police because, like children, we’re afraid of the bogeymen that the media tells us is waiting… just around the corner, or behind bushes.

Yes, crime does exist. Meteorites falling out of the sky also exist. Lotto winners exist.

So what are your chances of experiencing all three?

The way the media constantly fixates on crime – you’d think it could happen to you tomorrow.

The government could pass new laws every day of the week. Crime, however, will not go away. You probably will not be a victim tomorrow. Society will not be any more or less be any safer.

After all these laws – is it any more or less safer now?

Is the bogeyman real? Yes, he probably is.

But not today. And not tomorrow. Perhaps, for you, not ever.

But your loss of privacy is with you always.

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No more anarchy

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How Can A Minister of Finance Get It So Wrong???

28 February 2012 4 comments

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Five days ago, Finance Minister Bill English released a statement on the part-privatisation of several State Owned Enterprises. It is worthwhile re-printing his statement in full, and responding to it, point-by-point,

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Running up $5-$7b more debt not the answer

by Hon Bill English, Finance
23 February 2012

Opponents of the Government’s mixed ownership programme need to explain to New Zealanders why it would be better to borrow an extra $5 billion to $7 billion from overseas lenders, Finance Minister Bill English says.

Speaking to an Auckland Chamber of Commerce and Massey University business lunch today, he said the challenge was how the Government pays for forecast growth in taxpayers’ assets over the next few years.

“Taxpayers own $245 billion of assets, and this is forecast to grow to $267 billion over the next four years. So we are not reducing our assets. Our challenge is how we pay for their growth, while getting on top of our debt.”

The rationale for offering New Zealanders minority stakes in four energy companies and Air New Zealand is quite simple, Mr English says.

“First, the Government gets to free up $5 billion to $7 billion – less than 3 per cent of its total assets – to invest in other public assets like modern schools and hospitals, without having to borrow in volatile overseas markets.

“Our political opponents need to honestly explain to New Zealanders why it would be better to borrow this $5 billion to $7 billion from overseas lenders at a time when the world is awash with debt and consequent risks.

“We would rather pay dividends to New Zealanders on shares they own in the energy companies than pay interest to overseas lenders on more borrowing.

“The fact is, the Government is spending and borrowing more than it can afford into the future. So it makes sense to reorganise the Government’s assets and redeploy capital to priority areas without having to borrow more.

“Most nights on television, we see the consequences of countries in Europe and elsewhere borrowing too much. We don’t want that for New Zealand.”

Secondly, under the mixed ownership programme New Zealanders will get an opportunity to invest in big Kiwi companies so they can diversify their growing savings away from property and finance companies.

“Counting the Government’s controlling shareholding, we’re confident 85-90 per cent of these companies will be owned by New Zealanders, who will be at the front of the queue for shares.”

Thirdly, mixed ownership will be good for the companies themselves, Mr English says.

“Greater transparency and oversight from being listed on the stock exchange will improve their performance and the companies won’t have to depend entirely on a cash-strapped government for new capital to grow.

“We already have a living, breathing and successful example of mixed ownership in Air New Zealand, which is 75 per cent owned by the Government and 25 per cent by private shareholders.”

In his speech, Mr English reiterated the Government’s economic programme this term would focus on rebuilding and strengthening the economy.
It’s main priorities are:

  •     Responsibly managing the Government’s finances.
  •     Building a more productive and competitive economy.
  •     Delivering better public services within tight financial constraints.
  •     Rebuilding Christchurch.

“So there will be no big surprises from this Government,” Mr English says. “We have laid out our economic plan and Budget 2012 will focus on implementing that plan.”

Source

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Firstly, let’s call a spade, a spade here. Whilst National ministers use the euphemistic term, “mixed ownership model”, the issue here is partial-privatisation of state owned enterprises.  National’s spin-doctors may have advised all ministers and John Key to always use the phrase “mixed ownership model” – but the public are not fooled.

To begin, I take great exception to English’s opening statement,

Opponents of the Government’s mixed ownership programme need to explain to New Zealanders why it would be better to borrow an extra $5 billion to $7 billion from overseas lenders…”

Opponants of National’s part-privatisation do not “need to explain” anything. It is up to National to explain why it feels the need to part-privatise tax-payer owned corporations that are efficient and give a good return to the State.

Demanding that the  opponents of the Government’s mixed ownership programme need to explain” their opposition is the height of arrogance.  Governments in western-style democracies are accountable to the public – not the other way around.

English then goes on to say,

Taxpayers own $245 billion of assets, and this is forecast to grow to $267 billion over the next four years. So we are not reducing our assets. Our challenge is how we pay for their growth, while getting on top of our debt.”

Pardon?

“…we are not reducing our assets” ?!?!

Selling 49% of Genesis, Meridian, Solid Energy, Might River Power, Air New Zealand (from 75% to 51%) down to a 51% holding is “not reducing our assets” ?!?!

Bill English’s command of his namesake language is strange at best. I believe this is what George Orwell wrote about in his dystopian novel, “1984“, when he described “doublethink“,

To know and not to know, to be conscious of complete truthfulness while telling carefully constructed lies, to hold simultaneously two opinions which cancelled out, knowing them to be contradictory and believing in both of them…”

English laments that “our challenge is how we pay for their growth, while getting on top of our debt”.

This involves two distinct issues;

Paying for the growth of state assets.

Genesis, Meridian, Solid Energy, Might River Power,  and Air New Zealand are all profitable enterprises in their own right. In the 2010 financial year, these  assets made a combined profit of $581 million dollarsNone of these five SOEs are loss-makers.

They can each pay for whatever growth programme they require, using their profits.

Where National interfered in SOE operations, the results were highly distorted,

Genesis paid out no dividend and had a zero yield on its operating profit of $293 million.

It had a 30.5% shareholder return on total assets.

Meridian had a dividend yield of 10.4%, achieved by paying out 428.8% of its profit. The increase came from the $300 million special dividend it received during the sale of Tekapo A and Tekapo B stations to Genesis, which was forced by the Government to borrow to pay for the purchase.” – Source

The reason that there is a  “challenge [in] how we pay for their growth”  is simple: National demands high dividends from these  SOEs (often by forcing them to borrow) leaving little for the companies to reinvest in their own growth.

Under-funding is a problem only because National has created the problem.

Getting on top of debt.

Linking  New Zealand’s $18-plus billion dollar debt to funding the growth of SOEs is  deliberate sophistry (ie; a deliberate deception).

The reason we have out-of-control debt is because,

As a society and as an economy, we had no control over the first two crises to hit us.

But we sure had control over our taxation policy, and doling out generous tax cuts to millionaires and wealthy businesspeople was a luxury we could not afford. (Many maintain that National was “rewarding” certain affluent socio-economic groups for electoral support at the ballot box.)

Next. English states,

First, the Government gets to free up $5 billion to $7 billion – less than 3 per cent of its total assets – to invest in other public assets like modern schools and hospitals, without having to borrow in volatile overseas markets.

???

National appears confused (as with most of its ad hoc policies) as to the proceeds it may gain from the partial sales. Only a year ago, Key stated authoritatively,

“If we could do that with those five entities … if we can make some savings in terms of what were looking at in the budget and maybe a little on the upside you’re talking about somewhere in the order of $7 to $10 billion less borrowing that the Government could undertake.” – John Key, 26 January 2011

Then again, as recently as eleven days ago, English let slip that,

I just want to emphasise that it is not our best guess; it’s just a guess. It’s just to put some numbers in that look like they might be roughly right for forecasting purposes.  That’s an honest answer.” – Bill English, 17 February 2012

The best description of Key and English on asset part-sales: clueless.

It is also worrying that National is selling state assets to pay for  “other public assets like modern schools and hospitals, without having to borrow in volatile overseas markets“.

Every householder will tell you that if  you have to sell of your furniture; whiteware; tv, family car, to pay to maintain your home – then you are in deep financial trouble.

What National is doing is “selling the household furniture to pay for painting the house”.  Selling off assets to pay for maintenance is not sustainable – eventually you run out of stuff to sell. It is a really dumb idea.

But more than that, it indicates that National is not “earning” enough, by way of taxation revenue to pay for it’s house-keeping. If we have to borrow or sell assets to do simple things like paint schools or properly resource hospitals – then it is a fairly clear indication that taxation revenue is insufficient for day-to-day operations of public services.

It also indicates that we are paying for the 2009 and 2010 tax cuts by selling state assets.

This is not “fiscal prudence” – this is foolish profligacy.

Bill English again demands, in his speech,

Our political opponents need to honestly explain to New Zealanders why it would be better to borrow this $5 billion to $7 billion from overseas lenders at a time when the world is awash with debt and consequent risks.”

No,  Mr English. Perhaps you should “honestly explain to New Zealanders” why you believe it makes greater commerciall sense to part-sell  profitable assets that are returning a higher yield on investment, than what the government pays to borrow?


The Government is estimating a $6 billion reduction in net debt after the sale of the state-owned enterprises – but concedes the savings on finance costs will be less than what it would have booked from dividends and retained earnings if it kept them.

Treasury  forecasts released today in the Government’s budget policy statement outline the forecast fiscal impact of selling up to 49 per cent in each of the four State-owned power companies – Mighty River Power, Meridian, Genesis Energy and Solid Energy – and by reducing the Crown’s current shareholding in Air New Zealand.

They assume a price of $6 billion – the midpoint in previous estimates of a $5 billion to $7 billion sale price – and a corresponding drop in finance costs of about $266 million by 2016.

But the trade-off is the loss of an estimated $200 million in dividends by 2016 and the loss of  $360 million in forecast foregone profits in the same year.

Documents supplied today state that the overall fiscal impact of selling a partial stake in the SOEs is a reduction in net debt, but the Government’s operating balance will also be smaller, because foregone profits would reduce the surplus.” – Source


Yet, only a year ago, Bill English was forced to concede that state owned power companies were indeed, highly profitable. In fact, he was complaining bitterly about State-owned generators  “earning excessive returns”,

Generally the SOE model has been quite successful in that respect. But if you look at those returns being generated particularly out of the electricity market, the Government has taken the view that that market is not as competitive as it should be.” – Source

The State will be losing money on the deal; earning less dividends from the SOEs than the cost of borrowing. The sums simply don’t add up.

There also seems to be some confusion (no longer a surprise) as to what National intends to do with sale proceeds.

On the one hand Bill English sez he wants to reduce debt,

We are firmly focused on keeping the Government’s overall debt as low as possible and that is the most important consideration over the next few years.” – 16 February 2012

And a week later, English is spending it,

First, the Government gets to free up $5 billion to $7 billion…  to invest in other public assets like modern schools and hospitals…”  – 23 February 2012

I guess Mr English is hoping that no one is paying attention?

Further in his speech, English makes this rather candid admission,

The fact is, the Government is spending and borrowing more than it can afford into the future. So it makes sense to reorganise the Government’s assets and redeploy capital to priority areas without having to borrow more.”

And there we have it, folks: the clearest statement yet from our Minister of Finance that the partial-sale of our state assets has little to do with giving “mum and dad” investors a share in our power companies; or making them more efficient; or paying down any of our $18+ billion debt; or putting a new coat of paint on your local school – the government is desperate to raise cash because it  “is spending and borrowing more than it can afford “.

The tax cuts of 2009 and 2010 were never “fiscally neutral” as National kept insisting.

The “tax switch”  left a $1.4 billion “hole” in the government’s revenue and this is how they are attempting to “plug that hole”.

We have been conned.

The tax cuts will be funded by the sale of state assets that we, as citizens of this country, already own. And because the bulk of tax cuts benefitted the highest income earners/wealthy – who are also in a better position to acquire shares in Genesis, Meridian, Solid Energy, Might River Power,  and Air New Zealand – the transfer of wealth from low and middle income earners will be two-fold.

The legacy of John Key’s government will be to make the rich richer, and for the rest of us, we can look forward to,

  • more expensive power
  • losing half ownership of our taxpayer-created state assets
  • and the top 10% to increase their wealth even more

But, to be generous, I will leave the last word to the Hon. Bill English,

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"Would you be willing to increase the mortgage on your house to go and borrow the money to buy shares on mighty river power?" Bill English, 16 February 2012

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