Rum War Threatens Small Caribbean Producers
January 19, 2013
When Cap’n Jimbo hoisted me on my own petard, I should not have been so amused. But the Cap’n and I have jousted over whisky “facts” for a few years now. And I think if you asked the Cap’n he’d swear he’s won every round, just as I would assert he has not. Throughout we have both remained good natured. We both LOVE great spirits: the Cap’n – rum, me – whisky.
A couple of days ago the Cap’n sent me a note soliciting my support for a large number of tiny Caribbean rum distillers that are being crowded out of production by government-subsidized, big-moneyed producers. More hysterical provocation, I thought warily, before taking the bait. So I sent a note off to my friend, noted rum expert Dave Broom who confirmed that what the Cap’n had told me was no exaggeration. Then I went back to Cap’n Jimbo’s note, followed his link, and signed his petition. Read Cap’n Jimbo’s note below and decide if you should do the same.
Your help is needed to help save Caribbean rum…
I know that regardless of any of our petty differences (that naturally exist among men and women of generally good will) I am sure we all share a love for the fine rums that represent over 300 years of continuous production and development by wonderful Caribbean distillers.
These wonderful Caribbean rums are now in danger of going out of business.
In general these are small to medium size enterprises and include the hundreds of rums that we together have reviewed and blogged about. I’m talking about Mount Gay, Seales, Appleton, Wray & Nephews, Sangster, Myers, Barbancourt, Brugal, Barcelo, Ron Matusalem, Flor de Cana, the Demeraran Distillers Ltd., Ron del Barilito, and so many more.
What has happened are two things: an exponential growth of rebates to the Big Three (Diageo, Fortune and Bacardi) in the US Virgin Islands (USVI) and Puerto Rico. Import taxes from the USVI/PR and surprisingly also from all their small Caribbean competitors, are almost all rebated – to the benefit of the Big Three alone. These rebates were only about $87 Million to the USVI in 2007, but have escalated to about $500 Million annually today to the USVI and Puerto Rico. The pressure on the Caribbean distillers has increased and reached a breaking point in 2012.
Then things got much, much worse when the USVI instituted a “rum war” against Puerto Rico last year. What happened is almost unthinkable. The USVI gave Diageo nearly $3 Billion – not million, billion! – in subsidies. These subsidies were so rich that they amount to more than double the cost of actually producing rum! Diageo is actually being paid to produce rum. The USVI also gifted Fortune Brands (Cruzan) $1 Billion, yes billion – for all manner of free improvements and facilities, including a guarantee that Cruzan can buy molasses for just 16 cents/gallon – far under the market price of $2.00/gallon that the Caribbean producers must pay.
The result threatens all the Caribbean distillers, but especially those in Barbados, Jamaica, the Dominican Republic, and Guyana to name the most important. Still, smaller Caribbean labels everywhere fear for their survival, to no longer be able to produce rum at a competitive price. You see, almost all of them depend on sales of whites, gold and bulk rum to justify the time and expense of producing their far more expensive aged products.
1. This is real and serious, and it is happening right now.
2. Caricom has concluded that these subsidies constitute a violation of WTO (World Trade Organization) rules regarding fair trade. The Dominican Republic has filed a request for an official WTO Opinion, the precursor to an actual Complaint and hearing. This is a very serious and necessary step.
3. We must overlook our personal differences and work together to publicize this impending disaster. We should not wait until we have lost any of these very fine rums which, once gone, are gone (or modified) forever.
4. A Formal Petition has been created and continues to grow and garner signatures. The petition is designed in such a fashion to be accepted into official government records, and depending on the agency, is treated in the fashion as actual testimony. Please read, sign if you agree, and aggressively promote it. Adding personal comments is possible and encouraged. It is here: http://www.gopetition.com/petitions/stop-massive-u-s-rum-subsidies-to-the-usvi-and-puerto.html
5. Last, a background and press kit follows which illustrates the issues. If you have any questions or disagreement, kindly write to Cap’n Jimbo for additional and corroborating detail.
If you do nothing else read the formal petition’s preamble and formal demand for an overview, and assuming you agree, sign it.
If you need links to any of this material, please don’t hesitate to ask Cap’n Jimbo. In closing, I daresay that if you read the following, you too will understand the extreme nature of the situation and the need for us all to work together to Save Caribbean Rum, and to urge all of our readers to join together, read and sign the petition.
The magic number will be 20,000 signatures, at which point the petition will be formally filed with the WTO, WIRSPA, CARICOM, the EU, the Office of the US Trade Representative, and with selected members of the US Congress and appropriate committees.
If you have any questions, please let’s set aside our business as usual for a moment and address this urgent matter.
Following are some example exerpts from among many others, that you may find useful.
1. From the head of WIRSPA “The amounts that are being doled out now are staggering,” said Frank Ward, chairman of the West Indies Rum & Spirits Producers’ Association. “We were able to live with the level of U.S. subsidies as they once were. But the massive increases, we believe, have skewed the market.”
2. Anthony Bento, managing director of the 80-year-old Antigua company that makes English Harbour Rum in copper stills said “Our Caribbean distilleries need to export rum in order to survive. But bigger subsidies in the U.S. islands means we don’t get a level playing field for our exports, and it’s going to affect both small and large producers here…”.
3. Clifton Shillingford of Shillingford Estates Ltd, a small Dominica distiller that makes its Macourcherie rums from local sugar cane juice instead of molasses, said “…the subsidies for big global brands in the U.S. islands will “destroy” his rum business.”
4. From Seralles who makes the fine Don Q Gran Anejo: “Roberto Serralles, whose family distillery stands to lose millions in business, called the moves by the Virgin Islands an underhanded raid. “If Tennessee got G.M. to relocate by offering a subsidy that was more than the cost of making a car, wouldn’t the people in Michigan be upset?” asked Mr. Serralles, whose family has produced rum on Puerto Rico for six generations. “And you have to wonder — why is the government in the business of using federal funds to guarantee profits of a huge multinational corporation?”
5. This from Phil Prichard of Prichard Fine Rums (NY Times): “If our own federal government is also letting its taxes subsidise 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.”
6. Sir Ronald Sanders, Commonwealth spokesman: “The reduction of sales in the US market, and the EU due to this legislation will have an adverse effect on Caribbean CARICOM distillers financial capacity to survive, let alone continue to manufacture rum at a competitive price.”
7. Washington Diplomat (publication): “We have had four legal opinions, and it is quite clear that while there may be different approaches, the WTO would probably rule in our favor,” said John Beale, the ambassador from Barbados. His is one of the countries most affected by U.S. subsidies, since 90 percent of rum produced in Barbados is exported, either in bulk or bottled form. Beale warned that Barbados and its fellow Caricom states could very quickly find themselves priced out of the market if cheaper rums from Puerto Rico and the U.S. Virgin Islands are allowed to flood U.S. liquor-store shelves thanks to unfair and possibly illegal trade preferences.”
8. Ibid: An article in the New York Times suggests an even bigger fallout here at home. “The aftershocks could even change what people drink in the United States,” writer David Kocieniewski… “The tax incentives are so generous that Virgin Islands producers might ultimately try to use highly subsidized sugar cane to make blended whiskeys, vodka and gin, distillers on the mainland say. That could threaten the jobs of grain farmers and distilleries in the American heartland.”
9. Ibid: Bayney Karran, Guyana’s ambassador: “In Guyana, such a large part of our economic output is agriculture-based, and we suffer from the lack of value-added products. Sugar is the largest sector of our economy, and rum adds value. When our exports of rum are affected, it has consequences on employment,” he explained. Although Guyana’s El Dorado and Demerara premium brands are known worldwide, most Guyanese rum is exported in price-sensitive bulk form — leading industry leaders to warn that unfair competition from Puerto Rico and the USVI could further impoverish Guyana, where per-capita GDP stands at only $2,700 a year.
10. Ibid: “But the issue is more than economic, say the ambassadors. It’s also an emotional one, given the central role that rum has played in shaping Caribbean history for the past 400 or so years. It’s hard to find a country in the region that doesn’t produce its own rum — and these include not only giants like Bacardi and Havana Club but also lesser-known brands like English Harbour (Antigua and Barbuda), Chairman’s Reserve (St. Lucia), One Barrel (Belize) and Black Cat (Suriname).”
11. Stabroek News: “Two months after Barbados spearheaded a move to protest against the hefty rum subsidies that covered 100 per cent of the production costs of rum distilled in St Croix, the Obama administration had virtually ignored the pleas of the Caribbean for an end to the measures which, they warned, could destroy the rum industry in the English-, Spanish-, Dutch- and Creole-speaking Caribbean countries.”
12. Yvette Clarke, US Congresswoman from New York: “The Caricom nations have a very valid concern, and I certainly want to use my office to get to the bottom of the thinking of the USTR,” the congresswoman from Brooklyn told the New York Carib News. “The competition Caribbean rum producers would face because of the subsidies would not make their rum industry sustainable, and at some point we would face a major collapse of the bulk rum industry in the Caribbean if something isn’t done.”
In closing, I am sure this will provide plenty of quotable material to support the petition to Save Caribbean Rum.
Important: Late Breaking News…
Please also know that the Dominican Republic has taken the recent and very important step of filing what is a formal request for an “opinion” by the WTO. This is a necessary precursor to a formal complaint charging the United States and the USVI especially in what CARICOM believes are four serious violations of the WTO’s rules regarding fair trade.
Let us stand together in support of our Caribbean friends! Thank you…
Cap’n Jimbo and Sue Sea
The Rum Project and Forum
Images courtesy of The Rum Project website.