Diageo strikes different tone on Jamaican rum holdings
McPherse Thompson, Assistant Editor - Business
Alcoholic beverage giant Diageo Plc says it has no intention of engaging in a costly and unnecessary dispute with Caribbean rum producers over subsidies given to multinationals by the US Virgin Island.
At the same time, Diageo, which is a shareholder in Clarendon Distillers Limited in Jamaica, says it is seeking support from its partners at that plant to reach out to West Indies Rum and Spirits Producers Association (WIRSPA) on the trade and market issues with which they are concerned.
The company warned last week that it was prepared to re-evaluate its operations in the Caribbean were regional rum producers to play hardball and file a dispute with the World Trade Organization (WTO).
Those evaluations, it now says, does not include its rum holdings in Jamaica.
"Diageo has excellent relationships in Jamaica, and no present plans to modify our rum operations during the current contracts term," said the spirits company via email from its North American offices and directed through Marguerite Cremin, head of corporate communications for Latin America and the Caribbean.
Diageo said it recently invested significantly in renovating Clarendon Distillers, in which it has about 27 per cent ownership.
Clarendon Distillers, which is controlled by National Rums of Jamaica, is the producer of Monymusk White Overproof Rum.
"Indeed, we are actively seeking support from Clarendon to help us access some of WIRSPA's leadership to understand their issues," the company said.
Asked to confirm its position as it regards a possible re-evaluation of its Caribbean interests in view of the dispute, Diageo said, "as a business, we are constantly evaluating where we source products from, based on many factors - from price, to quality, to competitiveness."
Regarding its relationships with third-party suppliers throughout the world, Diageo said, "the terms of these contracts vary and we take pride in having positive relationships with our chosen suppliers. However, when contracts come up for renewal, we do re-evaluate them - which is sensible business."
The decision to replace rum the company previously sourced from Serrallés in Puerto Rico - having established a new distillery in St Croix, US Virgin Islands - was one such decision, it said.
The CARICOM complaint is that the authorities in USVI have given Diageo generous tax and other incentives to build a new distillery that would produce and export Captain Morgan Rum to the US at much cheaper rates than many of the spirits made by producers in CARICOM. They argue that the subsidies were in breach of WTO rules.
However, Diageo said to date that distillery only produces branded rum for the US premium rum market.
"This means that Diageo is not flooding the US market with rum. Diageo's premium rum does not compete with, much less displace, the bulk rum produced by WIRSPA members, and none of Diageo's USVI rum is sold outside of the United States," Diageo said.
Diageo said that apart from changing the source of rum, specifically for consumption in the United States, from Puerto Rico to the US Virgin islands, there have been no other significant changes to its rum sourcing recently.
"As a result, we fail to identify any changes, as a consequence of that sourcing decision, impacting other Caribbean or Central American producers," the company said.
"Indeed, CARICOM rum exports to the United States increased by more than 39 per cent in the first four months of 2012," it added, referencing first quarter 2012 import statistics from the Geneva, Switzerland-based International Trade Centre.
Diageo purchases bulk rum from multiple Caribbean producers in places such as Barbados and Guyana.
"In fact, Diageo currently sources the same amount of rum from the Caribbean that the West Indian Rum & Spirits Producers Association reports that its members export to the US market," it said.
"Diageo has repeatedly attempted to reach out to the WIRSPA leadership to discuss their apparent insistence on promoting a dispute through CARICOM, but we have received no responses as yet. We see no basis for the current apparent dispute, and are actively seeking to understand WIRSPA's issues," Diageo said.
"We have no desire to be drawn into a costly and, in our view, unnecessary dispute."
The spirits producer has defended the 'cover over' programme subsidies enacted by the US Congress since 1917, saying the goal was to provide the USVI and Puerto Rico with revenue to promote economic stability and fiscal autonomy.
Cover-over subsidies are annual payments from the US government to the US territories out of federal excise taxes.
Diageo said cover-over revenue, generated by a manufacturer's excise tax when its products are sold in the US, is considered locally generated revenue designated to be spent however the governments of each territory choose.
The beer and spirits producer, the incentives embodied in the USVI-Diageo agreement are patterned after various economic-incentive programmes employed by mainland US states to strengthen and diversify their economies.
Among those states it identified are Alabama, Tennessee and Georgia, which have used economic incentives to attract, for example, auto manufacturers.
Diageo Latin America and the Caribbean has more than 1,800 employees and operates across 43 different markets, according to its website.
Diageo also owns and operates Jamaican beer subsidiary, Red Stripe. The brewery recently launched its own white overproof rum under the D&G label.