Gov’t announces first of several agreements with PR rum producers

Written by  //  February 4, 2011  //  Government  //  No comments

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Joaquín Bacardi and José Pérez-Riera

In an effort to convey the message to the rum industry that PR is a viable place to do business, the Economic Development and Commerce Department announced the signing of a 20-year agreement with Bacardí Corp., ensuring its permanence on the island.

As part of the agreement, the goverment will give the rum-maker a $95 million grant over a 5-year period from the federal rum rebate program to modernize its Cataño plant. The rum-maker will also receive production and marketing incentives equal to 10 percent of the rum rebate attributable to the sale of Bacardi rum in the U.S. mainland, subject to an increase in 2012.

That money is in exchange for the distiller to maintain a minimum production of rum in Puerto Rico.

During a news conference Friday, Economic Development and Commerce Secretary José Pérez-Riera said the move responds to protect Puerto Rico’s rum industry, which has been crippled by the upcoming end of Diageo rum production, which generated millions for the island.

Last year, British conglomerate Diageo announced it would move its production of Captain Morgan and other spirits from Puerto Rico to the U.S. Virgin Islands, after the neighboring jurisdiction offered the company an aggressive incentive package to pack up and leave. Diageo liquors — which were part of the Serrallés production line — will be manufactured in the USVI starting next year.

The transfer will represent millions in losses for Puerto Rico in the form of rum rebates and the elimination of hundreds of jobs in the Ponce region.

But to mitigate the loss, the government is in talks with other local rum-makers to sign similar incentive agreements, Pérez-Riera said.

“This agreement with Bacardi — the first in a series of its kind we are actively negotiating with every local rum producer — shows our commitment to save this world-known, centuries-old industry, protect its jobs, and ensure the continuation of its contributions to the local economy,” said Pérez-Riera, who made the announcement alongside Cataño-based Bacardi Corporation President and CEO Joaquin Bacardí, and other local rum industry representatives.

On Friday, Bacardí said the company will use a portion of the grant to expand its rum aging warehouse in Cataño to increase production — in about 12 to 24 months — from the current 500,000 barrels to 750,000. That, in turn, will boost sales and fuel rum rebate returns to the island, presently estimated at about $400 million, but that will drop by about $140 million with Diageo’s departure.

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