Clashing positions on bulk rum

McPherse Thompson, Assistant Editor - Business

J. Wray & Nephew has rubbished claims by the world's largest spirits producer Diageo Plc that branded rum produced in the US Virgin Islands for the premium market in the United States does not impinge on bulk rum exported by Caribbean producers to the United States.

Recipients of the subsidy will have a price advantage over bulk or unbranded rum producers, says Wray & Nephew managing director Paul Henriques.

That advantage will eventually translate to a bigger market share for the incentivised producer, he argues.

Diageo has said that as a premium supplier of rum, its operations would not impact the markets of bulk suppliers.

"We do not agree with this statement as much of the region's bulk rum trades on price, and so, over time, purchasers of this rum will naturally seek out the least expensive option," J. Wray & Nephew managing director Paul Henriques said.

"The subsidies received by the multinationals make their pricing artificially low, and create an unfair trade advantage."

Caribbean rum producers have complained that the authorities in the US Virgin Islands 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 the Caribbean Community.

They argue that the subsidies were in breach of the rules of the World Trade Organisation (WTO).

However, in the past week Diageo, which has a 27 per cent interest in Jamaica's Clarendon Distillers Limited and owns and operates Jamaican beer company Red Stripe, said it would re-evaluate its Caribbean operations were a challenge to be launched at the WTO.

Diageo said it has no intention of engaging in a costly and unnecessary dispute.

Wray & Nephew is the dominant producer of rum in Jamaica, and reportedly controls more than 80 per cent of the domestic market.

Impact

Henriques, in emailed responses to Sunday Business, did not specifically say what impact the measures taken by the US Virgin Islands has had or is expected to have on Wray & Nephew's export volumes.

However, he emphasised that "these subsidies dramatically reduce the cost of production to these large multinationals when compared to other Caribbean distillers, which leaves them with artificially low costs of production, and/or huge additional sums with which to promote their own brands."

Wray & Nephew - Jamaica's largest blender, distiller and bottler of rum - has listed its main export brands as Appleton, white overproof rum and Coruba, which, Henriques said, "we export to over 50 countries worldwide."

The company has adopted the stance taken by other local distillers to have the trade issue dealt with on a regional level rather than on a disaggregated company-by-company basis.

As a result, Wray & Nephew, as a member of the Jamaica Rum and Spirits Trade Association, has brought the issue to the attention of the West Indies Rum and Spirits Producers' Association (WIRSPA), a grouping of all distillers in the Caribbean, which has sought diplomatic intervention in the matter.

Diageo has said it hopes to use Clarendon Distillers to argue its position to WIRSPA.

Henriques was also imprecise on the likely impact of the measure on the company's operations, including the revenue side, reiterating that the subsidies provide an unfair trade advantage to Caribbean distillers.

He declined to comment on a suggestion by former diplomat Sir Ronald Sanders that Jamaican distilleries were under threat of being affected by the subsidies granted by the US Virgin Islands government.

Instead, he raised the issue of fairness.

"In Jamaica, the fact that the other smaller distillers are being asked to compete against large multinationals (which) are being subsidised by the American taxpayer is a cause for great concern."

In November 2011, Diageo US Virgin Islands opened its rum distillery in St Croix, according to the company's 2011 financial statements. It said the distillery is part of a 30-year public-private initiative between Diageo and the government of the US Virgin Islands "that allows Diageo to construct and operate a state-of-the-art, environmentally sound, high-capacity rum distillery" that will produce all bulk rum for Captain Morgan products in the United States starting this year.

mcpherse.thompson @gleanerjm.com