Caribbean Rum Under Attack
On January 1st, our dear Congress passed legislation avoiding the "fiscal cliff". But one "add-on" to the bill gives a huge gift to two mega-distilling conglomerates - Bacardi and Diageo - in the US Virgin Islands and Puerto Rico.
The effects of this are immediate and threaten the continued existence and availbility of Caribbean rum! Here's how:
1. The USVI and Puerto Rico receive nearly a billion dollars in subsidies, much of which is simply passed along to the mega-distillers.
2. The US also gave Diageo $2.7 Billion - yes billions - to move and build a huge distillery in the USVI
3. The new fiscal cliff law also imposes a huge penalty - $13.50 per gallon - for all other Caribbean rum.
Friends, this is a huge crisis. CARICOM - which represents the rest of the Caribbean countries and distillers - are furious, as this self-dealing move threatens their continued existence as rum producers, and a devastating blow to their economies, which are largely rum based.
Especially affected are the Dominican Republic, the Bahamas, Jamaica, Barbados and Guyana who are highly dependent on the now protected US Market. They face failure and going out of business. Accordingly, the CARIFORUM is now lawyering up and plan to challenge this insult, dirty dealling and what they cite as a direct and clear violation of the WTO regulations on free trade.
They are right. All rum lovers who hope to continue to enjoy a wide diversity of rum from all over the Caribbean must band together and protest this horrible giveaway to the already hugely profitable mega-companies, and who seem to operating from nothing beyond greed and profit, even if it destroys their smaller but honest competition.
There is a a petition against these unfair subsidies and taxes:
Personally, I am appalled at what has happened, especially in the dark of night and slipped into the fiscal cliff bill. To favor a very few - two politically powerful conglomerates - to seriously harm the many serves no one. I sincerely hope this action can be reversed as the idea that we may lose access to our favorite Caribbean rums is simply unthinkable.
Jimbo, do you know if the 13.50 per gal is "above and beyond" whatever was previously in place, or are we talking about a prior tax of X that will be increased to Y (13.50)?
If it's a full above and beyond, then 13.50 per gal is around $2.67 per 750ml bottle. I don't like an additional 2.67 but it won't deter me from buying my fave Carib rums. However, a 2.67 per bottle increase probably will affect total demand, no doubt.
On the other hand, the main Diageo rums in the US are Meyers and Capt Morgan (yes?), neither of which I'm really fond of. Zacapa is a guatemalan in their portfolio and it's already priced at a point I don't buy it.
Diageo's two venezuelans... Cacique I had my share of while on business in Venezuela in the 70's, it's okay but again nothing I buy today. Haven't tried Pampero...
For Bacardi, I've blind-tasted every rum in their portfolio and don't like any of them...
.... bottom line is for $2.67 they won't push me off my two fave rums, both from the Caribbean (Appleton Gold and Pyrat). But for people who are very price-sensitive and don't particularly savor one rum over the other it doubtless will have an impact. Thanks for bringing attention to this!
The taxes - which will not change - are not the issue. Far more important is that ALL the taxes collected - about $500M per year, are being rebated to the USVI and Puerto Rico, which funnel most of them to Diageo (Capt Morgan), Fortune (Cruzan) and Bacardi.
That's free money which has been increasing as these Big Three take over more and more of the rum shelf space! Worse yet, the USVI have given - yes given! - just last year subsidies worth $3 Billion (yes, Billion) to Diageo and $1 Billion to Fortune.
Diageo is actually collecting more than double the cost to actually produce the rum, and essentially is being paid to produce rum. Fortune's deal is similarly sweet, with these amazing sums paying for new facilities and allowing Cruzan to purchase molasses for just 16 cents/gallon - while everybody else has to pay about $2.00 gallon.
These subsidies are so massive that the rums of Barbados, Guyana, Jamaica and the Dom. Republic especially, may not be able to continue in business. They are completely upset as the loss of rum distilling not only affects their small economies but is culturally damaging.
These subsidies are hardly needed, are completely unfair, with billions of US Tax dollars going to - yes - foreign corporations, esp. Diageo. It is a travesty, completely unfair, unneeded, un-competitive, anti-quality and anti- selection.
I have watched what were the terrific selections of Caribbean rum get forced off the shelves year by year until now, when the Big Three dominate 90% of the shelves, and 100% of the prime, eye-level displays. They have the volume and clout to demand and receive this space.
If you love rum, the time is now to fight back and sign the petition (linked in several places here) and object to these subsidies. If we wait, it will be too late and any damage simply cannot be undone...
This is not a new tax. An old tax was simply reauthorized. It was set to expire on Jan 1 and the cliff deal reauthorized it.
Per the Washington Post and the Wall Street Journal, the tax on rum was instituted in 1917 and has been reauthorized continually since then.
I don't think any of the tax breaks in the cliff deal were new, so from Nascar to hollywood movie tax break these are all old benefits that got extended for the future
If it were only the taxes, it would not be an issue. Even so the taxes from the USVI and PR are rebated, to the tune of over $6 Billion dollars since 1994. In addition Diageo and Cruzan are also the beneficiaries of another $4 Billion, plus forgiveness of taxes, and more!
The benefits to Diageo is actually double the cost of producing the rum. The USVI subsidies actually built their distilleries, and forgave them all manner of other taxes for 30 years. Cruzan received huge amounts to improve their distillery, build a wastewater treatment plant, and were guaranteed the ability to buy molasses at just 16 cents/gallon, far, far under the market cost of $2.00/gallon.
Bottom line: roungly $10 Billion dollars of competition destroying freebies to the Big Three, They get the (massive) gold while our beloved Caribbean rums get the shaft and no real support whatever.
Hardest hit and at greatest risk of failure are rums from Barbados, Jamaica, Guyana, the Dominican Republic, and the Bahams - which represent the heart, soul and history of rum as we kinow it.
This is horrible and we must support our Caribbean friends. Please sign the petition, linked above somewhere...
Oops, slight error:
2. Should be the USVI gave Diageo $2.7 billion to move and build a distillery there. This amounts to a huge new free facility.
This does not include other such side deals, which are many. For example the distillers there can purchase molasses for 16 cents/gallon rather than $2/per gallon.
Sir Ronald Sanders, a Commonwealth commentator had this to say:
"Earnings and employment generated by the rum industry in 14 CARICOM countries and the Dominican Republic (collectively CARIFORUM) are under siege and the entire industry could be severely diminished in a few years unless the governments of these countries take swift action."
"In previous commentaries, I have drawn attention to the devastating effect on CARIFORUM countries if the US Virgin Islands (USVI) and Puerto Rico (PR) are allowed to continue current arrangements in which the governments of those two US possessions unfairly use a tax rebate from the US Federal Government to provide huge benefits to companies to produce and market rum for the US market. Now a comprehensive report commissioned by the Commonwealth Secretariat, highlights a major threat to exports of CARIFORUM rum to the 27-nation European Union (EU)."
"When losses from the US market - that are now very real because of the actions of the USVI and PR – are added to the potential losses from the EU market, on the strength of 2011 figures DR remains the biggest loser per annum in money terms (US$88.2 m), Bahamas second (US$34.9 m), followed by Jamaica (US$25.4 m), Barbados (US$25.3 m) and Guyana (US$16.08 m)."
" The reduction of sales in the US market will have an adverse effect on their financial capacity to survive, let alone continue to manufacture rum for the EU market at a competitive price. This is particularly true for Barbados for whom the US is the biggest rum market worth US$17.2 m, or twice as much as the EU market, in 2010."
The five most affected countries, and who are most severely affected are the Dominican Republic, the Bahamas, Jamaica, Barbados and Guyana. CARICOM feels strongly the US subsidies are a violaton of the WTO Rules, and have lawyered up in this regard.
As they should.
Even smaller American distillers are concerned. According to the NY Times:
"Distillers on the mainland are concerned about a $1 billion subsidy the Virgin Islands recently awarded Fortune Brands, the American company that makes Cruzan Rum, Jim Beam Bourbon and other spirits.".
Quoting Phil Prichards of the wonderful Prichard Fine Rum of Tennessee:
"“If our own federal government is also letting its taxes subsidize foreign corporations and offshore producers, it makes it harder to survive,” said Philip E. Prichard, whose independent distillery in Tennessee makes rum and bourbon. “It flies in the face of entrepreneurship.”
The bottom line are these:
1. The tax difference alone is substantial and anti-competitive enough, but these pale next to the huge multi-billion dollar side deals and special subsidies made to Diageo, Bacardi, Cruzan and Captain Morgan.
2. Add to that the losses of EU's monies and the bulk of Caribbean rums that we know and love are in deep trouble and may not survive.
3. Even American distillers are concerned over deals that favor three huge corporations that already dominate sales. These deals represent power politics and big money working to eliminate their competition using any means at their disposal, short of actually producing a better product.
5. These mega corporations already own 90% of store shelf space, and 100% of the prime space, with ever fewer fine Caribbean sipping rums being literally squeezed out.
6. In the last couple years, these unearned advantages have escalated dramatically, and have nearly quadrupled in about the last ten years. These are anti-competitive, anti-selection and anti-quality.
For those who may have missed it there is a link to a petition in the OP, above. All those who love and value fine Caribbean rums, who value selection and availability of these famous rums at fair prices should be sure to sign the petition in support.
It is the least we can do for our Caribbean friends and to preserve the wonderful rums made by smaller distillers all over the 26 countries and islands that make up CARICOM, our beloved Caribbean rums.
These political maneuvers do result in price advantages to what I consider marginal rums. Flor de Cana, Centenario, Havana Club, Cacique, and Barrel 1,from Nicaragua, Costa Rica, Cuba, Venezuela, and Belize respectively, are attractively priced without subsidies. Orinoco from Brazil is an interesting premium, a cachaca-rum hybrid, but compelling. A profusion of aged rums are now getting more shelf space than ever; I'm encouraged by the trend.
Not true. All the 26 countries of CARICOM, including these are affected.
The situation is so extreme that many of the Caribbean rums we love and take for granted may be forced out of business. Even American distiller Phil Prichard (of Prichard's Fine Rum) has objected publicly in the NY Times:
“If our own federal government is also letting its taxes subsidize foreign corporations and offshore producers, it makes it harder to survive,” said Philip E. Prichard, whose independent distillery in Tennessee makes rum and bourbon. “It flies in the face of entrepreneurship.”
The NY Tiimes article is extremely enlightening and will change your mind, check this out...
Also, I'd ask you to check the preamble to the petition to Save Caribbean Rum and then please come back and comment. It is shocking...
The thought that the Caribbean rums we have all come to love may be driven out of business is horrifying.
re: Capn Jimbo
I signed your petition. I was unaware that these lobbyist-driven subsidies were so egregious and unbalanced, and frankly unnecessary. The beneficiaries must be laughing all the way to the bank.
Unfortunately, when political officals make unwise or corrupt spending decisions, they can be difficult or impossible to undo.
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