Rum Cover Over Program: Crunching some numbers

[jankdc]

Ok, so we know that all rum produced sold in the U.S. is taxed at $13.50/gallon. $13.25/gallon is then given to the USVI and PR. This amounts to $2.15/750ml of 40 proof, of which $2.11 goes back to these territories.

In 2011, Puerto Rico had an income of $449 million from this program and the USVI had an income of $133.5 million. This is a total of $582.5 million.

USVI had 23% of the pot, with PR getting 77%. (With Diageo ramping up production, this will shift more towards the USVI.)

USVI is giving 48% of their money back to the distillers, with PR giving 25% back. (PR was at 10% for many years, but has increased it to "compete" with the USVI. Some sources that they will soon match the USVI in percentage going to the distillers. So $.23 goes to USVI producers, while $.41 goes to the producers in PR.

Based on 2011 numbers, for each bottle of Appleton, Barbancourt, El Dorado, or Prichards that we buy, $.64 goes directly into coffers of Bacardi, Diageo and Cruzan. For 2012 it's probably $.70 and in the coming years, it will approach $1(as more production goes to the USVI, and PR increases their corporate donations) for every bottle of rum that we buy. If we buy a liter or a bottle of Wray and Nephew's overproof, that amount is actually much larger.

[da'rum]

It's an absolutely appalling situation.

[Capn Jimbo]

And that's before the special subsidies...


For example consider the special subsidies lobbied by Diageo, reproduced here from the petition:

Diageo, based in Britain, received $2.7 Billion and will get a new plant built at taxpayer expense, exemption from all property and gross receipt taxes, a 90 percent reduction in corporate taxes, plus marketing support and production incentives totaling tens of millions a year.

These incentives are so rich they are double the cost of actually producing the rum.

Fortune Brands (Cruzan) was awarded $1 Billion dollars and will receive an assortment of tax-financed incentives, including $100 million for improvements to its distillery on the island and a wastewater treatment program. The agreement also ensures that the company will pay no more than 16 cents a gallon for molasses, the main ingredient of rum, now selling for more than $2 on the open market.

In Diageo's case the agreement for these special advantages was for a period of 30 years, renewable for 60 years.


Bottom Line:


The cover over was clearly anti-competitive but to which the Caribbean distillers managed to adjust slowly - but only to a point. The special subsidies are approaching like a tsunami - with a huge and devastating effect. As far as fighting back against these subsidies, one cannot underestimate the power of the Big Three. The number of labels they control, the amount of advertising they spend, their dominance and influence over distribution, selection and even shelf position is mindboggling.

Those who make a living in spirits or whose publications sell advertising space or time, are literally afraid of them. They make enough bulk purchases throughout the Caribbean that they are able to threaten to withdraw and move these at a moment's notice, and have threatened to do so. Blackmail.

And last, their tentacles even reached these pages on March 2nd - DD-Day - when Hamilton, Butt, Cokely and Dykstra simultaneously told the same vicious and diversionary lies in an attempt to discredit the petition - in an unprecedented and coordinated fashion.

These put the cover overs to shame. Worse yet: Diageo isn't even an American company but obviously one who knows how to buy influence with American dollars.

[Dai]

It's an absolutely appalling situation.

I second that!!

[Dai]

Compare all that tax payer money going to these guy's against the Callwood Distillery:

https://www.youtube.com/watch?v=ns4UFQaNju8

Poor sods just about got diesel engine for the cane crusher.

[jankdc]

I'm putting this link explaining the cover over program. Again 60-70 cents of every bottle of rum sold in the US is getting put into Diageo, Cruzan, and Bacardi's pockets.


The Rum Excise Tax Cover-Over: Legislative History and Current Issues(.pdf)

Under current law, the excise tax on rum is $13.50 per proof gallon and is collected on rum produced in or imported into the United States. Through 2011, $13.25 per proof gallon of imported rum is transferred or “covered over” to the Treasuries of Puerto Rico (PR) and the United States Virgin Islands (USVI). In FY2009, PR received over $431.7 million in revenue and the USVI received over $115.4 million. The law does not impose any restrictions on how PR and USVI can use the transferred revenues. Both territories use some portion of the revenue to promote and assist the rum industry.

[Capn Jimbo]

Great contributions...


Thanks again for some terrific contributions. I urge all readers to be SURE to check out the Callwood distillery video - a real slice of history and reality, very moving. You can be this tiny, single pot distillery in a broken down stone building doesn't get any subsidies.

Personally, I'd take their rum any day over Diageo Dingleberry...