Diageo opens distillery on the Virgin Islands
Construction of Diageo’s 20 million proof gallon rum distillery began in August 2009, and was completed on time and on budget. The distillery will generate an estimated USD 130 million in new tax revenue for the Virgin Islands Government, in addition to the USD 139 million that the construction has already brought to the community, it was reported.
Diageo has agreed that at least 80 percent of the full-time employees at the distillery will be from the U.S. Virgin Islands, and the company has created more than 60 full-time jobs to support the operation and management of the distillery.
Beginning in 2012, the distillery will supply rum used to make Captain Morgan products for the United States.
In February this year, the world’s number three drinks group (by revenues), Bacardi, launched an attack on Diageo, putting in doubt the proper use of federal tax dollars.
Unbeknown to many, U.S. territories get rebates from excise taxes levied on rum in the United States. In turn, some of that money is then given back to the distillers in various forms, including local tax breaks, infrastructure programmes and advertising subsidies.
Puerto Rico, with its several distilleries, used to get about USD 450 million annually from the nearly century-old programme, while the Virgin Islands with only one distillery – Fortune Brands’ unit Cruzan – got about USD 90 million.
Because of Diageo relocating Captain Morgan rum to the Virgin Islands, Puerto Rico stands to lose about USD 150 million a year, whereas the Virgin Islands stand to gain.
According to Bacardi, Diageo could rake in USD 2.7 billion of U.S. taxpayer funds over the next 30 years.
Guy Smith, Executive Vice-President of Diageo North America, called his company’s deal with the Virgin Islands “a historic and innovative public-private initiative – that will lift the U.S. Virgin Islands’ economy out of the crisis.”
Diageo pointed out that Bacardi, the self-styled anti-subsidy warrior, receives tens of millions of dollars a year in annual government rum subsidies.
At the opening ceremony on St Croix, there were only smiling faces, especially when Diageo’s CEO Paul Walsh announced that Diageo will construct the first ever Captain Morgan visitor centre onsite, adjacent to the distillery. The centre, which should provide St Croix with another tourist attraction, is slated for completion just in time for the distillery’s first rum shipment in early 2012.
