BREAKING NEWS. Diageo takes Captain Morgan production to St Croix.

[Rum Runner]

At this moment Governor de Jongh of the USVI is announcing on TV and Radio that the USVI has entered into a Public/Private agreement with Diageo to bring a new rum distillery to St Croix.

The 30 year agreement will see an investment of US$165,000,000. in the building of a state of the art distillery to supply Diageo's needs for the Captain Morgan brand.

Construction of the new facility is expected to be completed by 2011. The capacity of the facility is expected to be 20,000,000 proof gallons per year.

The economic return to the USVI is expected to be US$100,000,00 per year when full capacity is reached.

Governor de Jongh also paid due to the meetings he had in Paris a few weeks ago with Pernod/Ricard, the new owners of Cruzan. He expressed optimism that Cruzan's new owners will grow the brand.

The Governor said that Diageo officials will be on Island later in the week, and that more detail will be forthcoming.

The above information was noted while listening to AM Radio WVWI 1000, St. Thomas, USVI.

Personal note: This amounts to a bit of an economic coup for St Croix and the USVI. Puerto Rico and the rest of the Caribbean must be reeling at this development.

[Edward Hamilton]

That is a coup indeed for St Croix. Loosing Captain Morgan will be a real loss for Puerto Rico. Investment in St Croix can only be good for the island. I hope they'll incorporate environmental initiatives in the new construction.

[RobertBurr]

PR from Fox:

The new facility will produce bulk rum beginning in 2011. Beginning in 2012, the distillery will supply all bulk rum used to make Captain Morgan branded products for the United States. Captain Morgan is a global leader among premium spirits and is the second leading rum consumed in the world, with steady growth expected in the coming years. It is estimated that the environmentally sound, state of the art distillery will have capacity to distill up to 20 million proof gallons per year. This 30-year commitment will provide a major economic stimulus for the entire Territory of the U.S. Virgin Islands.

[Rum Runner]

Here is a transcript of the Governor's speech as reported by the St Croix Source (http://www.onepaper.com/stcroixvi/?v=d&i=&s=News:Local&p=1212899255).

[Scottes]

Better stock up on The Captain before the taste changes!

:rolleyes:

[weier]

Hello all. I think this could be a good thing in the long run. there are other distillers out there like DONQ who will perhaps decide to venture further out and tell the whole world that "regardless Puerto Rico still makes great rum"

[Rum Runner]

Good one Scottes!

I know this will not affect most users of the good Captain Morgan..But the economic value to the USVI is very important. And down here that is big news.

[Edward Hamilton]

PR from Fox:
Captain Morgan is a global leader among premium spirits and is the second leading rum consumed in the world, with steady growth expected in the coming years.

I was about to ask what you were smoking down there in Coral Gables while you were calling Captain Morgan a premium spirit then I noted that that commented was attributed to PR from Fox. Is that the same Fox that broke the news that Bush had beat Gore in Florida in 2008. I certainly trust those guys, or not!

[RobertBurr]

Personally, I don't have much to say about the good Captain's products, so I just passed along the word from Fox. They also reported that Captain Crunch was a premium breakfast product and a global leader among seafaring cereals.

[chipnwho]

Rumor has it that Peter Pan and the Lost Boys have been at work on a distillery on Neverland Island and plan on introducing a "Captain Hook" line of rum to rival "Captain Morgan". Tinker Bell will be holding a press conference later today.

[Bill]

What I'd like to know is what concessions were made to Diageo, ie tax breaks and the like? Here in the midwest, sometimes these are such that you have to give away the farm to grow some corn. Persons who might otherwise have been in ownership or management of smaller enterprises may find themselves as lower paid employees as a huge corporation grabs a bunch of land, resources and employees no longer available to local businesses. Politicians cut deals that sound great but the devil is in the details. Here in the states large employers (or baseball teams for that matter) often play one state or city against another. The "winner" often finds they are the loser financially and can find themselves held hostage to such mobile companies.

Moving or establishing a large business is a very costly and time consuming and I just have to believe political incentives were offered.

Does anyone know?

[Rum Runner]

What I'd like to know is what concessions were made to Diageo, ie tax breaks and the like? Here in the midwest, sometimes these are such that you have to give away the farm to grow some corn. Persons who might otherwise have been in ownership or management of smaller enterprises may find themselves as lower paid employees as a huge corporation grabs a bunch of land, resources and employees no longer available to local businesses. Politicians cut deals that sound great but the devil is in the details. Here in the states large employers (or baseball teams for that matter) often play one state or city against another. The "winner" often finds they are the loser financially and can find themselves held hostage to such mobile companies.

Moving or establishing a large business is a very costly and time consuming and I just have to believe political incentives were offered.

Does anyone know?

The Governor stated that this is a joint Public/Private venture, so I am sure that a substantial economic incentive package was offered to Diageo to get them to make such a large and long commitment to the USVI. What is unique for the USVI in this deal is the fact that product coming from this new facility will be exported to the USA. This is important because of the rum tax rebate which the USVI (as well as Puerto Rico) enjoys by way of the US Congress. This means the tax the US Federal government imposes on each gallon of imported spirit is given back to the USVI government. At full production capacity that would amount to around $100,000,000.00 annually.

This project will need to be approved by the USVI legislature, so I'm sure details of concessions made to Diageo will come to light over time.

[Stamina1914]

Better stock up on The Captain before the taste changes!

:rolleyes:

And why would we want to do that. A change would be welcomed.

I'm sorry I couldn't resist.

[rumdog007]

Better stock up on The Captain before the taste changes!

:rolleyes:

Thanks for the reminder, Scott! I have over 40 cases of Tattoo already, but need another 20 cases of the Parrot Bay. But, personally, I don't think that they'll mess too much with the formula given that it is liquid perfection.

[RobertBurr]

Diageo has a reputation for making deals that are very good for Diageo. However, the economic impact of the crumbs left over from such a venture are quite substantial. USVI could not say no. The only downside is that they become even more heavily dependent on a single source of revenue. They may find that 35% of their country's GNP is the eggs in these two baskets - Cruzan and Captain Morgan.

[Rum Runner]

Diageo has a reputation for making deals that are very good for Diageo. However, the economic impact of the crumbs left over from such a venture are quite substantial. USVI could not say no. The only downside is that they become even more heavily dependent on a single source of revenue. They may find that 35% of their country's GNP is the eggs in these two baskets - Cruzan and Captain Morgan.

Good points Robert. As you know, many of the Islands are heavily dependant on one or two sources of revenue. Tourism and Booze.

With fuel prices soaring the tourism industry is feeling the pinch due to increased airline and cruise ship costs. Even at the destination level tourist related activities, such as charter fishing, chartered/barefoot yacht cruises, jetskiis and car rentals are taking a hit too.

When times get tough the booze keeps flowing. Especially when one's price point is right.

At least the two eggs of Cruzan and Captain Morgan seem to be well feathered in their baskets for the near term.

One interesting tidbit that came from the press conference held today in the USVI, with the Governor introducing the Diageo suit heading up this new project, was that Diageo has been buying bulk rum from Cruzan for a long time.

As a minor point (but a sensitive subject down here) the USVI as well as Puerto Rico are unincorporated Territories of the USA..Not countries.

[Stamina1914]

Diageo has a reputation for making deals that are very good for Diageo. However, the economic impact of the crumbs left over from such a venture are quite substantial. USVI could not say no. The only downside is that they become even more heavily dependent on a single source of revenue. They may find that 35% of their country's GNP is the eggs in these two baskets - Cruzan and Captain Morgan.

As a Virgin Islander, and a Cruzan, the rum industry will be great. However the rum industry will still be 3rd to tourism and Hovensa, the oil refinerey.

[Rum Runner]

As a Virgin Islander, and a Cruzan, the rum industry will be great. However the rum industry will still be 3rd to tourism and Hovensa, the oil refinerey.

Actually, I believe that rum may be the fourth largest source of revenue. As here in Puerto Rico, I believe the USVI "Government" is the largest source of revenue.

[Caribgoodies]

Diageo has a reputation for making deals that are very good for Diageo. However, the economic impact of the crumbs left over from such a venture are quite substantial. USVI could not say no. The only downside is that they become even more heavily dependent on a single source of revenue. They may find that 35% of their country's GNP is the eggs in these two baskets - Cruzan and Captain Morgan.

Rum revenue is no where close to 35% of the Virgin Islands GDP even after ratification of the Diageo agreement.

Tourism remains the number one industry and tourism arrivals continue at record levels this year. While one poster was concerned that rising fuel costs would negatively impact tourism, so far we have seen the exact opposite effect. The impact of the weaker U.S. dollar has seen many U.S. residents switch their European vacation plans for a stay in the Virgin Islands.

And then we have the Hovensa refinery, the largest in the Western Hemisphere, 3rd largest in the world and the only U.S. sourcing plant that can handle the heavy Venezuelan and Cuban crude oil. As the single source supplier for fuel, tar and plastic needs for the Eastern United States, that economic base is incredibly stable.

Remember, also, that St. Croix boasts the largest ethanol production facility in the world. This is a source of tax revenue separate and apart from Hovensa's dependency on Venezuelan and Cuban oil.

Rum currently ranks far down the list as a revenue source, but hardly a stable one historically. The excise tax rebate revenue received by the Government of the Virgin Island from rum sales has fluctuated in the past depending upon the whims of Congress. Right now the Virgin Islands receives $13.25 per barrel but historically, Congress has taken the rebate as low as $10.50.

For clarification, the Virgin Islands Government is not spending a dime on bringing Captain Morgan to the Territory, nor is it obligating itself through bond issuance. The Virgin Islands is providing its bond rating as a carrier to the financing of the distillery construction as a grant to Diageo. However, the Virgin Islands does not have any obligation to repay the bond. That obligation remains with Diageo and its investors.

Over 30 years the estimated revenue gain to the Virgin Islands Government through excise tax rebates alone is estimated at over $3 billion. This averages out to a MINIMUM of $100 million a year. I see it then as no wonder that Puerto Ricans flew to St. Thomas and last evening engaged in criminal activities, littering the town of Charlotte Amalie with stick-on posters that are now defacing historic buildings, monuments, street signs, power poles, walls, etc. These posters are shouting down the Diageo agreement but basically have done nothing more than anger St. Thomas residents and caused our Waste Management Authority to issue an all points bulletin. The fine for littering here is $1,000 per item.

The Virgin Islands looks forward to a long and equitable relationship with Diageo. The agreement as drafted provides numerous protections for the people of the Virgin Islands and, upon passage today or tomorrow, will be a benefit to all parties concerned.

[Edward Hamilton]

Rum revenue is no where close to 35% of the Virgin Islands GDP even after ratification of the Diageo agreement.

Remember, also, that St. Croix boasts the largest ethanol production facility in the world. This is a source of tax revenue separate and apart from Hovensa's dependency on Venezuelan and Cuban oil.

Rum currently ranks far down the list as a revenue source, but hardly a stable one historically. The excise tax rebate revenue received by the Government of the Virgin Island from rum sales has fluctuated in the past depending upon the whims of Congress. Right now the Virgin Islands receives $13.25 per barrel but historically, Congress has taken the rebate as low as $10.50.



Welcome to the forums Caribgoodies. I appreciate your well written first post but am surprised that St Croix boasts the largest ethanol production facility in the world is just that.

Do you have any idea of the production? Nicaragua has a new ethanol plant that came on line in Jan that is one of the largest in the region.

[Stamina1914]

Actually, I believe that rum may be the fourth largest source of revenue. As here in Puerto Rico, I believe the USVI "Government" is the largest source of revenue.

Close. I wouldn’t classify the government as a source of revenue, but it is the largest employer on the islands.

[Stamina1914]

Welcome to the forums Caribgoodies. I appreciate your well written first post but am surprised that St Croix boasts the largest ethanol production facility in the world is just that.

Do you have any idea of the production? Nicaragua has a new ethanol plant that came on line in Jan that is one of the largest in the region.

http://www.virginislandsdailynews.com/index.pl/article_home?id=17615534

The link does not go into specifics about whether or not this is the largest plant in the world, but it sure sounds impressive.

[Edward Hamilton]

Close. I wouldn’t classify the government as a source of revenue, but it is the largest employer on the islands.

When the US government pours billions of dollars into an island economy it has to be counted as a source of income if not revenue. Except for some taxes that money wasn't generated on the island.

[Edward Hamilton]

Source: Ino
July 11th
The U.S. Virgin Islands has agreed to issue $165 million in bonds to help build a rum distillery.
The bonds will also help subsidize the cost of molasses used to produce bulk rum at the St. Croix facility that is expected to open in 2011.
Diageo PLC said the facility will supply all of the bulk rum used to make Captain Morgan branded products for the United States in 2012. The company is the world's largest alcoholic drinks producer.
The distillery expects to have a distilling capacity of up to 20 million proof gallons per year.
Legislators ratified the agreement late Wednesday after a two-day debate.


So it sounds like Diageo is getting consessions for their operating costs as well as help financing the distillery. After building a new more efficient distillery and getting subsidized raw materials maybe Diageo will implement waste recovery initiatives and lower their product prices.

[Rum Runner]

Here is a report from the The St. Croix Source (http://www.onepaper.com/stcroixvi/?v=d&i=&s=News:Local&p=1212899886) giving more detail on the Diageo contract and hearings by the Senate that led to the ratification.

[Fishinrum]

I'm just surprised that Disney hasn't come out with a Jack Sparrow rum. Maybe there already is and I missed it.

[Michael]

I'm just surprised that Disney hasn't come out with a Jack Sparrow rum. Maybe there already is and I missed it.

Wouldn't it have to be non-alcoholic to avoid attracting kids? :)

[Caribgoodies]

Welcome to the forums Caribgoodies. I appreciate your well written first post but am surprised that St Croix boasts the largest ethanol production facility in the world is just that.

Do you have any idea of the production? Nicaragua has a new ethanol plant that came on line in Jan that is one of the largest in the region.

The facility is owned by GeoNet and has a production capacity of 100 million gallons a year. It is located on the site of the former Martin Marietta Aluminum plant on property leased from the Renaissance Group. The ethanol is distilled and dehydrated from Brazilian corn starch and supplied by Industrias Dedini de Base in Piracicaba, Brazil.

Oh, yeah...we also ferment beer.


On the Captain Morgan deal, it passed the Legislature 10-5. A promise was also elicited to purchase sugar cane from St. Croix farmers should they wish to start growing cane again. Additionally, the distillery is being built to accommodate 20 million proof gallons, more than twice the current U.S. Captain Morgan rum supply needs which are growing at 10% a year. The extra distilling capacity will enable Deagio to also venture into marketing new types of rum products to the United States in the future if they so desire.

[Caribgoodies]

Source: Ino
July 11th
The U.S. Virgin Islands has agreed to issue $165 million in bonds to help build a rum distillery.
The bonds will also help subsidize the cost of molasses used to produce bulk rum at the St. Croix facility that is expected to open in 2011.
Diageo PLC said the facility will supply all of the bulk rum used to make Captain Morgan branded products for the United States in 2012. The company is the world's largest alcoholic drinks producer.
The distillery expects to have a distilling capacity of up to 20 million proof gallons per year.
Legislators ratified the agreement late Wednesday after a two-day debate.


So it sounds like Diageo is getting consessions for their operating costs as well as help financing the distillery. After building a new more efficient distillery and getting subsidized raw materials maybe Diageo will implement waste recovery initiatives and lower their product prices.

Ah, yah...the phrasing of your English is off. The Virgin Islands Government does not issue bonds. And the bond issue is to be $219 million with a hedge to $250 million. This is a cushion to cover cost increases and over runs. A common misconception during the hearings was that the Virgin Islands Government might in some way, be liable for the repayment of the bonds. Basically, by acting as a third party, the Virgin Islands with its excellent bond rating was able to get Deagio tax exempt bonding not commonly available to corporations. The liability to repay the bonds belongs to Deagio and its investors and not with the Virgin Islands Government.

I do challenge anyone to find me a private corporation or business that builds factories, distilleries or even sports stadiums without government subsidies r assistance. Heck, there isn't even a single gasoline refinery in the United States that does not receive heavy federal subsidies to keep gasoline prices as low as they are. (Yes...I said "as low as they are". Without those subsidies you would be paying close to $10 a gallon.)

So, were I you I would not expect rum prices to fall simply because of this deal. Captain Morgan already receives rum tax credits for the spirits distilled in Puerto Rico. The credits negotiated will not result in the price drop you are looking forward to. Worse, because of rising corn prices related to its use in ethanol, expect manufacturers of consumer foods to begin looking at cane sugar again as a sweetener. We all know what happens when demand for a commodity product increases.

The distillery, with modern automation and computerization will use almost 2/3rds less staff than the antiquated Puerto Rico facility, so there will be a savings in payroll costs. Whether or not that will be enough to cause a price drop in three years when the new distillery goes on-line will depend highly upon economic conditions in the world at that time.

[primate77]

I'm just surprised that Disney hasn't come out with a Jack Sparrow rum. Maybe there already is and I missed it.

Or perhaps Disney came out with "Rally Monkey Rum", since they own the options on that name!

Given a choice between drinking Jack Sparrow or Rally Monkey, I'd take my chances with Rally Monkey!

[Michael]

...
Given a choice between drinking Jack Sparrow or Rally Monkey, I'd take my chances with Rally Monkey!

As a life-long SF Giants fan, Rally Monkey (http://en.wikipedia.org/wiki/Rally_Monkey) Rum is at the bottom of my list, suitable only for washing oil off the driveway. ;)

[Rum Runner]

Here is Diageo's latest press release (http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/01-09-2009/0004952196&EDATE=) regards the progress of the new distillery.

[TheRumelier]

Interesting. What will happen with Seralles Jim, will they just produce their label rums, Don Q, etc?? That is a lot of business to lose.

[Rum Runner]

Bob, I presume Serralles will be producing for Diageo until the new distillery comes on line at full capacity.

One may also presume that Serralles knew this was coming for a fair amount of time. It will be a big hit for them to absorb and they must feel that they can do so and still remain viable within their core brands.

The funding of the Puerto Rican Government is taking a big whack also in the loss of the rebate of Federal tax from the exported rum. The (now former) Governor Acevedo-Vila remained mostly silent as Diageo was turning the spigot off.