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Rum Cover Over Tax

Sunday, March 3rd, 2013

Nearly one hundred years ago the US Congress initiated what has become to be commonly known as the Rum Cover Over tax. Without knowing anything about rum, the reader should understand that something is being covered over and the word tax should tell you that it involves money. If you drink rum in the US, it’s your money.

For the last 80 years or so, no one really talked much about this line in the congressional archives that gave money back to the US Virgin Islands according to the federal tax that was paid in the form of Federal Excise Tax on sugar cane spirits imports from that Caribbean territory.

Currently the Federal Excise Tax, or FET as it is known in the industry, on a 750ml bottle of alcoholic beverages at 80 proof, the standard bottle you’ll find on a liquor store or bar shelf is or 40% alcohol is $2.17. One liter and 1.75 liter bottles are taxed $2.89 and $5.06 respectively. Back in 1917, the US government agreed to give back to the US Virgin Island general fund, most of that tax, which was smaller in those days. Since the money came back to the USVI general fund, it could be used for whatever purpose the local governor thought best served his islands.

About 1957, Puerto Rico appealed to the fine folks in Washington for the same deal. And they confirmed what fine folks they are, by giving Puerto Rico the same benefits that their windward neighbors had been enjoying the previous 40 years. Bacardi was in the process of gearing up production in Puerto Rico and it wan’t long before the tax on that rum sold in the US brought considerable dollars back to the island. The Puerto Rican government recognized that by passing on some of the money that Bacardi and other distilleries on the island were generating to the distillers themselves in the form of marketing assistance that even more money would come south from Washington, D.C. And it did.

The rest of the tax money would go to the Puerto Rican general fund and go to build schools and buy lavish houses and yachts for those elected to disperse that money from the general coffers. In the Virgin Islands, the story is similar but names of the people and companies involved differ.

And then came Diageo. No. That isn’t exactly true. Diageo had been buying rum from Serralles since the late 20th century for their Captain Morgan brand rum after they acquired that brand from Allied Domencq. Historically, Diageo didn’t own their rum distilleries as Seagrams had in the last century. But as the Captain Morgan and other brands grew, Diageo began searching for a place to build a modern rum distillery. They were already buying rum from Venezuela – Pampero and Cacique, and Guatemala – Zacapa, but they wanted to build a distillery so they could more closely manage their production costs in a stable political environment. The decision of where to build was also influenced by the value of the concessions afforded them by the host country. Being a British company and since the British Virgin Islands are too small to accommodate a project of this size, Diageo went to the US Virgin Islands began the conversation about building on St Croix.

Rum production on St Croix dates back centuries, almost to the introduction of sugar cane to the Caribbean by Christopher Columbus to what he called the West Indies in 1493. Well, Chris, didn’t actually carry the sugar cane with his own hands, he was too busy for that, but he was the guy that got the Queen of Spain to finance his trip after successfully returning from a shakedown cruise the previous year. Sugar cane, was one of the plants he brought which he claimed he would use to start a new Spanish colony in the New World. Closer to the truth was that starting a Spanish colony would give the conquistadors a base from which to explore, or more accurately exploit, the riches of the New World.

By the 18th century, St Croix was a patchwork of sugar cane fields. Even today you can see the remains of sugar mills and distilleries from almost anywhere on the largest of the US Virgin Islands. Lacking a protected port like Charlotte Amalie on St Thomas, St Croix didn’t develop as the trading center but rather the agricultural center of the Virgin Islands.

In the last century only two distilleries remained until hurricane Hugo destroyed the Brugal distillery in 1989. Since that time the Cruzan distillery has grown through a number of acquisitions and takeovers as international companies recognized the quality of the rum produced and aged on St Croix. Everything changed a few years ago when the US Virgin Islands governor made a deal with Diageo to build a distillery not too far from Cruzan. But there was going to be a big difference, Diageo would get back half of the rum cover over tax money that it generated. Governments giving industries incentives to invest in their region is nothing new, but in this deal, Diageo would get back more than their cost of production for any sugar cane spirit sold in the US and thence taxed by Uncle Sam, their new favorite uncle.

And there was more, St Croix would help finance the construction of the distillery through bonds guaranteed by the money that would be generated by the new distillery. A match made in political heaven. Not many businesses get back more than their cost of production even before they get paid for their product.

Five hundred years after the Spanish sailed by what are now the Virgin Islands because they didn’t see the golden treasure they were looking for, it seems Diageo has found more than gold.

As you might expect, Puerto Rican rum producers cried foul because by their laws only a small percentage, less than 20% of the rum cover tax received by the Puerto Rican island government could go to the rum producers themselves. Another percentage would go to Rums of Puerto Rico, that promotes all of the rums from that island.

The owners of the Cruzan distillery also felt a bit slighted but were able to negotiate some low cost loans to they could modernize their facility and compete a bit more fairly with their new neighbor. Unlike Diageo, Cruzan depends on aging their rum, a process that ties up a lot of money and resources. But like Diageo, Serralles and Bacardi, Cruzan also sells a fair bit of fresh bulk rum to blenders and bottlers that use it for a myriad of products some of which don’t even have the word rum on the label.

But don’t think for a minute that this is just a local controversy between a couple of neighboring islands over an estimated $30 billion over the next 25 or so years. Almost every rum producer in the Caribbean has cried foul claiming Diageo and other US Caribbean rum producers are enjoying unfair advantages in what is supposed to be free and level market.

Most of the those people have forgotten the $5 million euros the EU spent a few years ago to promote Caribbean rum. But even if Diageo had orchestrated that promotion and paid the entire bill itself, it would have paled in comparison to this deal. There have been rumblings of misconduct by Congressmen, but that’s mostly died down as business as usual as there were more important issues during the last US presidential election. And there has been talk about a suit against the US in the World court. Who will finance such a court battle is yet to be seen. Every rum producer and rum producing country has their own interest and though unity is probably the only way such a challenge could succeed, the reality just isn’t that simple.

The Dominican Republic rum producers claim to be harmed by the Diageo rum cover over tax deal. The reality is that only rum sold for consumption in the US is subject to the rebates. And much of the rum produced on the Dominican Republic, less than 100 miles downwind from Puerto Rico, is distilled on Trinidad or Panama and then blended and bottled in a free trade zone on the south coast of the DR. The next time you pick up a bottle of rum, look for the country of origin of the rum, not just the country where the rum was produced.

The Dominican Republic government receives a lot of aid from Uncle Sam and many influential Americans including the Clintons vacation on the south coast of the DR. Although the blended and bottled rum market is important to the DR for employment, there are little to no alcohol tax paid in that country since the bottling industry operates in a free trade zone and most of those products are not sold on that island.

Historically, the West Indian Rum and Spirits Producers have failed to cooperate as a group to do much of anything. In 2000, they agreed not to adopt any best practices for their industry, so it seems unlikely that they will be capable of uniting on something even this important to them. In the bigger picture, this as an opportunity to differentiate between the rum that is being distilled and bottled by Diageo and that which has decades, if not centuries, of tradition. Certainly the Caribbean rum producers on Barbados, Trinidad, Panama, Jamaica, Antigua, St Lucia and others are justified in feeling that they are at a disadvantage, but they have so much more to sell in terms of authenticity and heritage if they wanted to be more transparent. It should be noted that the tax advantage is greatest for a company that is selling the cheapest, freshest rum. The price of an older, more expensive rum isn’t affected by the cover over tax nearly as much as a young, cheap rum. And as the rum market expands, imbibers are looking for better products with less regard to what even Diageo admits is a high fructose corn, flavored, sugar cane spirit.

There is a lot of uncertainty in the future of this controversy. (Don’t get me started on the corn subsidies that are destroying the health of livestock and the American population. Please). But there is one indisputable fact that is as clear as the words on this page. When everything thing is said and done, there will have been a lot more said than done.

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National Rum Day 2012

Thursday, August 16th, 2012

Thursday, August 16, 2012 is National Rum Day. In recent days I’ve received more rum recipes than I could possibly publish but I would be remiss if I didn’t post a new blog post on National Rum Day. Never heard of National Rum Day? Well, you’re not alone, unless you’re a rum drinker that follows the internet buzz on my favorite spirit. In about it’s fifth year of being a recognized day of appreciation for sugar cane spirits National Rum Day is being recognized by all of the important media including too many blogs to mention and that icon of credibility, the Huffington Post. Sorry cachaça drinkers and importers, cachaça is still classified as rum in the US where National Rum Day was born but at the Ministry of Rum we still accept you as a sugar cane spirit.

How you celebrate National Rum Day is up to you, but here are a few tips to help you make the most of this special day. Take the opportunity to try something new today. Everyone has their favorites, but rum is the most diverse of all the distilled spirits. Celebrate the diversity of rum with something you haven’t tried before. There will still be time to go to one or two of your old favorites, but you owe it to yourself, if you call yourself a rum drinker or an adventurous soul, to expand your horizons. If you’re like most of us you’ll be working part of the day, so take some of that work time and educate yourself about a rum you haven’t tried before. You don’t want to be another boring rum drinking do you? Learn something you can share with your friends. Even if you and your friends enjoy the same rums do you know the population of the country where that rum is made? What year was rum first made in that country? What is the capitol? And what is the current exchange rate between your countries? The moer you know about the rum in your glass the more you’re going to enjoy it.

Invite a friend share some rum with you. You’ll feel better and so will your friend.

Ask your bartender what they recommend? Bartenders are a wealth of information and misinformation, but they shouldn’t be overlooked as resources. Even if they don’t know the capitol of the country that made the rum they are pouring, they could very well introduce you to a new drink that will become a new favorite.

So what rum should you drink on National Rum Day? Go with a a few to celebrate the diversity of this noble spirit. My first drink of the day will be a ‘ti punch made with rhum agricole. Then I’ll look for something to eat and a rum punch made with something that has been aged, but not aged too long. After dinner it will be time for a rum old fashioned or something aged in a glass with a little water.

What is the best rum to drink today? Twenty years ago I was visiting Barbados and was asked this question by a local reporter. The previous week I had enjoyed a lot of incredible rums ranging from fairly young rums to some of the oldest in the Caribbean. It was getting on into the night but I gave that reporter an answer that I has stood the test of time. The best rum is the one in your glass. There is a bit of magic in every glass of rum. No other spirit can take you from wherever you are to a sunny Caribbean beach in one sip.

Since rum is a truly international spirit, I’d like to offer a suggestion for National Rum Day. This day should be changed to International Rum Day. And to all the PR interns that have sent me rum recipes, you can post them on this website by registering on the forums and adding them yourself to the database. They will be selected at random to be shown on the front page every time that page is loaded, about 70,000 times a month this year.

Lastly, remember that you can’t lie on the beach and drink rum all day if you don’t start in the morning. Enjoy the day even if you aren’t on a beach in the islands. Cheers!

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Angostura Global Cocktail Contest

Sunday, April 15th, 2012

It was nearly twenty years ago that I first sailed into Trinidad’s Carenage anchorage protected by the westernmost point of Trinidad and a few sparsely populated barrier islands. The trade winds that had powered my sloop from Florida south through the Eastern Caribbean island chain had died to a gentle breeze during the night. The ocean current augmented by the outflow from the Oronoco and Amazon rivers was stronger as I approached the Bocas, a group of small islands that guard the entrance to the Gulf of Paria and Trinidad. The brilliant blue Caribbean water had turned a duller hue and the tropical heat was almost oppressive early on that August morning. Even before I dropped anchor there were signs that this was not just another Caribbean island that wore the scars of hundreds of years of wars, slavery and the fall of the sugar trade on its chest.
In this anchorage, almost everything was different from the other islands, the aroma of the landscape drifting across the water, the sounds of the wildlife and the roar of the outboard motors on the fishing boats confirmed what I had heard Trinidad was a rich island where fuel was cheaper than water on many of the other islands. A few minutes later while clearing customs and immigration a woman wearing a freshly-pressed uniformed looked me straight in the eyes and asked the purpose of my visit to Trinidad and Tobago. “I’m here to research the rum of your islands,” was a reply that I had practiced on more than a dozen islands by that time. Without losing her eye contact she spoke directly to my eyes. “Beware the Puncheon!” She repeated the admonishment. “ Beware the Puncheon!” Then she firmly stamped my passport. She was practiced at imprinting the dark blue seal of her country evenly so that every letter would be easily read. I collected my papers and headed back to my dinghy where I got my first introduction to doubles. Without a doubt, Trinidad was going to be an experience like no other in the Caribbean.
So it didn’t take me long to accept an invitation I received a few months ago to come back to Trinidad and be part of the 2012 Angostura Aromatic Bitters Global Cocktail Challenge. Fortunately, for me, I wasn’t asked to judge the competition, there were more worthy souls to do that. Not that I don’t like cocktails prepared by some of the world’s best bartenders, but all too often it has been my experience that at the end of the day there is one winner and a dozen or more discouraged bartenders, some of whom have had more than enough time to consolidate their hatred of the judges while sipping some of their competitor’s concoctions and waiting for the results to be announced.
Arriving before most of the competitors, judges and other journalists, I wasn’t as jetlagged as some unfortunates who had traveled more than 36 hours to arrive at Piarco Airport outside Port of Spain, Trinidad in mid-February. I had forgotten how absolutely glorious the weather was in Trinidad at that time of year. Traveling from higher latitudes the weather, camaraderie and opportunity to catch up with old friends, connect face to face with people I only knew as Facebook friends or twitter followers really set the mood for a truly festive week. The competition itself was held on Sunday. Monday was the first day of Carnival, followed by the big celebration and parade Tuesday. Timing is everything, but it was only Thursday and there was a lot to do before the competition and carnival.
Each of the fifteen finalists had won regional competitions around the world – North America, the Caribbean, Africa, Asia, Europe, Russia, India, Australia, New Zealand and South America. The rules were straightforward, use Angostura Aromatic Bitters in two cocktails, one with rum – with Angostura being the preferred brand, this was after all an Angostura competition, and the other was a freestyle cocktail where bartenders could use just about anything they wanted to use. And they did.
Even before my first visit to Trinidad I was familiar with the small bottle with the over-sized label containing Angostura Aromatic Bitters but it wasn’t until I arrived on Barbados that I really got to know what was in that iconic bottle. Despite being made on Trinidad, Angostura Aromatic Bitters is more a part of the drinking culture on Barbados than it used to be on Trinidad, but that is changing. Visiting the Angostura compound just east of Port of Spain it is impossible to miss the name Angostura above the door, but until the past few years, my focus has always been on the rum produced here. In fact, in all of my visits over the years it was only recently that I was invited to see where the closely guarded medley of herbs and spices are percolated with alcohol to make the world’s most famous bitters. The ingredients are actually blended on the floor above where the essential oils, fragrance and flavors of the ingredients are extracted. After being meticulously measured by one of the only five people who guard the secret of Angostura Aromatic Bitters, the dry mixture is dropped through a chute onto stainless steel trays over which the alcohol is percolated by pumps for about 12 hours before being filtered, reduced and colored prior to bottling.
Originally formulated in 1824 as a tonic for troops fighting under Simón Bolivar in Venezuela by DrJ. G. B. Siegert, the bitters took its name from Angostura, a town on the banks of the Oronoco River where Dr. Siegert served as the Surgeon-General of Bolivar’s military hospital. After fighting in South America foreign soldiers returned to their homeland and took bottles of Angostura bitters with them, spreading the Angostura name around the world. In the last century Angostura Limited, as the company became known, began making its own alcohol to make the iconic bitters. Though a series of acquisitions and mergers, today the alcohol is produced by Trinidad Distillers Limited, which is wholly owned by Angostura Limited. Since 2000, TDL has been the only company producing molasses based alcohol in Trinidad. With the rise in popularity of bitters in the growing cocktail culture, Angostura has maintained its place as the most recognizable bottle behind the bar. Angostura Orange Bitters was the first new product to be released by the company in nearly two centuries. Though both of these products share the bitters name only the original Angostura Aromatic Bitters is considered an aromatic product, one where the aroma of the bitters is as important as the flavor of the liquid itself.
I’ve used bitters in cocktails, with varying degrees of success and I’ve added a few dashes of bitters when I’ve cooked stew, but was always afraid of using too much. When I was invited to an afternoon feast, to call it anything less would be an understatement, titled “Flavors of the World; Fusion Cuisine” ~ Featuring Angostura Bitters my appetite was tempered by apprehension. I’ve encountered more than a few things that had to be tasted to be believed and I became a believer that afternoon. Now, I’m not going to say that you are going to experience the same culinary wonders on your first try at home (this feast was created by Chef Israel Calderon, CEC, CCA). I certainly would encourage you to try a bit of bitters in your cooking the next time you’re ready for a bit of adventure on your plate.
Take a look at some of these recipes and if your mouth doesn’t water, you have just finished a great meal or you need to have your glands checked.
After a great meal and another cocktail it’s time to relax and listen to the sound of the islands. Antigua and Trinidad claim to be the original home of the steel pan. Sometime after WWII, discarded oil drums were beaten into shapes that would yield a number of delightful notes, depending on how well the pan was tuned. The process of making a steel pan takes many careful hours by trained pan makers. In most pan yards there are a couple of apprentices that do the initial shaping before the masters take over to tune the pan. Then the pan head is heated to relieve some of the stressed formed in making the instrument. At this point it is no longer a discarded oil drum. The pan is ready to be painted, chromed or powder-coated to keep it from rusting away over time. Orchestras of more than 30 pan players are common with that number going over 50 in the larger pan orchestras. Close your eyes and you can hear all kinds of instruments from brass to wind to all kinds of percussion. In Trinidad young people learn to play pan music in school and for a few it becomes a lifelong passion that takes them around the world.
A few days before Carnival, Panorama is a nationwide competition of pan bands from around the twin island nation of Trinidad and Tobago. Don’t even think of going to Trinidad without going to see and hear at least part of Panorama. Like a lot of the activity in Trinidad during the Carnival season, Panorama is broadcast live on local tv, but there is nothing like seeing this in person.
The 2012 Angostura Global Cocktail Challenge was held Feb 19th at Trotter’s Restaurant & Bar. Although the competition itself is not a public event, a number of distributors, press and enthusiasts managed to get in to see a great exhibition of talent. And lucky for us, we got to sample most of the cocktails as the contestants made extra a few extras for the crowd to taste with straws.
Each bartender made two cocktails and before long it was evident that even simple drinks that we all have been enjoying can, with judicial use of bitters, be enhanced. The complex mixture of alcohol, roots, herbs, spices and other secrets quickly mixes in any alcoholic drink. Everything from a gin and tonic to a Manhattan can benefit from a bit of bitters. The addition of bitters adds another layer of flavor to cocktails just as it does in cooking. It soothes the acidity in citrus-based cocktails as well as non-alcoholic based drinks. Angostura Aromatic Bitters is 44.7% alcohol but since only a few dashes of this ingredient are used the additional alcohol added is negligible. Creamy drinks are enhanced in color and arom, while the nutty, citrus notes of the bitters tends to add a coherence to almost every cocktail in the competition. There is simply no other cocktail ingredient that adds so much flavor and character to a cocktail.
At the end of a grueling day (sampling cocktails all afternoon is hard work, if you can get it) the judges – mixologist Tony Abou-Ganim, Eric Forget – Hine Cognac Cellar Master, Jacob Briars – Leblon Brand Ambassador, Vidia Doodnath – Angostura Executive Director and Andy Griffiths – the 2011 Global Cocktail Challenge Winner had to make some tough decisions. In the end, Rikki Carter of New Zealand won Best Rum Cocktail. David Delany Jr. from Massachusetts won the Best Freestyle Cocktail and Global Challenge Winner. David who had just quit his job a few days before flying to Trinidad took home a check for $10,000 and a position as the Global Ambassador for Angostura Aromatic Bitters for the coming year.
Want to try your bartending skills? Take a look at these recipes that were served in the 2012 AGCC.

Unlike many other competitions, everyone who participated in Trinidad had already won $5,000 in their regional competitions, not to mention a trip of a lifetime to the home Angostura Aromatic Bitters, which just happened to be the day before Carnival. Timing is everything.

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