Regional rum producers will not be bullied says WIRSPA

West Indian rum producers are afraid it will be the bottom of the barrel for their industry if the rum subsidies dispute between their countries and the US government is not resolved.

BRIDGETOWN, Barbados, Monday, August 20, 2012 - The West Indies Rum & Spirits Producers Association (WIRSPA) is continuing to lobby regional governments to find a resolution to the dispute over unfair subsidies being given to its competitors in the United States Virgin Islands (USVI) before ‘terminal damage’ is caused to the industry.

This was made clear by chairman of WIRSPA, Dr Frank Ward, in a release issued this morning (August 20) in which he stressed that the matter required urgent action and early resolution if the rum industry of the Caribbean Forum countries (the Caribbean Community plus the Dominican Republic) were to survive in their present form.

Dr Ward also made veiled opposition to the recently publicised stance by multinational rum producer Diageo that it might re-think its operations in the wider Caribbean if the Caribbean did not stop agitating for an end to the USVI incentives that allowed Diageo’s rum to flow into the US market at a cheaper price than WIRSPA’s member could offer, which Diageo strongly denied was the case.

“Documented threats have recently been made in public against the rum industry in CARIFORUM countries. Such an approach threatens Caribbean economic sovereignty and suggests a failure by those involved to understand how small nations and their communities react to external hostility whether from multinationals or from governments. Such an approach will only strengthen Caribbean resolve,” stated Ward.

However, in the release, which Ward said was aimed at “setting the record straight”, he also made it clear that WIRSPA’s members were not in a tit-for-tat with Diageo.

“The dispute is between the Governments of these independent Caribbean countries and the United States and not between rum producers. This is because subsidies given to rum producers in the USVI and Puerto Rico from a US government programme threaten to damage an important sector of the Caribbean economy,” he stated, adding that: “If not addressed, the cover-over programme has the capacity to damage terminally rum production in these countries.”

Ward said the rum industry was the region’s largest agriculture-based export industry and generated annually an estimated US$500m in foreign exchange for independent Caribbean countries, well over US$250m in tax revenues, and made a vital economic contribution to small vulnerable economies.

However, he disputed suggestions by Diageo that Caribbean rum producers were in fact growing their exports into the US.

“WIRSPA wishes to note that recent statements that exports of CARIFORUM rum to the USA increased by 39% in the first quarter of 2012 are misleading. Disaggregated data (available on request to the media) shows that the choice of reference point, the first quarter of 2011, was by far the weakest period for rum exports to the US in that year. In reality the strong figures for the first quarter of 2012 hide the fact that this growth is nearly all attributable to a single country and is largely the result of a temporary change in inventory management rather than actual sales. Outside of that country, all major CARIFORUM exports to rum in the first quarter of 2012 to the USA were down when compared to their average quarterly exports in 2011,” Ward made clear.

Ward said estimates suggest that that some of the operating subsidies alone exceeds the actual production cost per litre of bulk rum. An example of the extent of these subsidies is evidenced by the USVI offering companies based there, a fixed price on molasses which is around 10% of the market price. Molasses are one of the biggest costs centres for rum production and this 90% subsidy is totally distortive to the regional market place.

The combined new production capacity which is planned as part of the agreements is estimated to add the equivalent of 80% or more volume to the US market at its current size, he pointed out.

“Such massive increases in production capacity can only result in major distortions to the regional market and the demise of many rum producers in independent Caribbean countries which are not being subsidised,” the veteran rum producer lamented. Click here to receive free news bulletins via email from Caribbean360. (View sample)