Guyana’s Rum Industry on an economic high

Guyana’s Rum Industry on an economic high
November 16, 2013

–has economist calling for expansion
GUYANA’s rum industry is a source of national pride for many. And, with good reason! With only two rum producers, this tiny English-speaking South American nation is currently the world’s 14th largest exporter of the spirit, and has racked up a multitude of international accolades for its El Dorado and XM brands.According to the West Indian Rum and Spirits Association (WIRSPA), rum is defined as “any spirit distilled solely from the fermented sugars derived from the sugarcane plant, and distilled below 96% alcohol by volume.”
In other words, in the context of the Caribbean, it is only truly rum if it is produced from molasses, explained 28-year-old economist, Dianna Da Silva-Glasgow.

“Given the fact that Guyana has been so successful on the world market on the efforts of only two firms, I think the scope for expanding the industry and allowing for more firms to come in is significant. Imagine how much further up the ladder we can go if we have a lot more players involved in the local rum industry.”

Speaking at a recent forum hosted by the University of Guyana’s Institute of Development Studies (IDS) at the Education Lecture Theatre on the Turkeyen Campus, Glasgow examined factors responsible for the local rum

Economist, lecturer and IDS Researcher Dianna Da Silva-Glasgow
Economist, lecturer and IDS Researcher Dianna Da Silva-Glasgow

industry’s stellar performance, and prospects for the sector’s improvement and expansion.
This performance is all the more significant since, in spite of the erosion of preferential access to markets and the global financial crisis, Guyana’s exports have grown steadily, she indicated, adding:
“Exports to the Netherlands rose from US$5 million in 2005, and have grown over the years at an annual average of US$9 million.”
Strategic positioning
According to Glasgow, a lecturer attached to UG’s Department of Economics, the successful performance of the rum industry is attributed to the strategic positioning of the local rum producers, Banks D’Aguiars Industries and Holdings (Banks DIH), and Demerara Distillers Limited (DDL), in the global value chain for rum.

The global value chain for rum comprises the “main stages that come together to produce a bottle of rum,” Glasgow explained, adding:
“These are the main processes; these are the main inputs that go into the production of rum.” By order of production, these stages include molasses production; bulk rum production (which entails the fermentation and distillation of molasses, and ageing); blending; bottling; and distribution.
A graduate of the University of the West Indies (UWI), Glasgow iterated that the rum producers have been able to “successfully identify good segment[s]” of the rum value chain. For instance, in the bulk rum production stage, producers set their rums to age in oak barrels for lengthy periods.
The oak barrels are what give rums that “nice brown hue,” she disclosed, adding that since brown (dark) rums “dominate in the rum industry, accounting for 61.2% of the market share, it means that Guyana has been able to effectively get into the right segment of the global rum market.”

Banks-DIH-rum

In addition, the lengthy ageing period is very important to the quality of rum that is produced, since the very old rums are regarded as premium spirits, the lecturer posited, noting also that aged rums are “gaining ground” over other spirits, such as whiskies, bourbons and Armagnac.
“It is in this regard that Guyana has been able to stand out successfully on the global market,” she said, adding: “DDL has been able to successfully carve a niche for itself through the export of dark, aged rums as old as 25 years.”
Glasgow also mentioned that white rum is growing in preference to vodka as a mixer, and that during the bulk production stage, white rum is made by simply ageing the rum in steel containers. Thereon, it can be marketed on the basis of its colour alone.
“Banks DIH, which has only recently launched its XM label in the UK,” she said, “can actually successfully tap into this segment of the global rum market.” Flavoured rums are also becoming popular, she noted.


Competitive edge
The IDS researcher explained that both firms increased their competitiveness by upgrading their respective productive capacities through investing in human capital. She noted that both companies run scholarships and graduate management trainee programmes to equip their personnel with skills in chemistry, engineering and management. In addition, she disclosed that the companies had added to their respective productive capacities by investing in the installation of several capital-intensive equipment that increase the automation of the rum manufacturing facilities, as well as in quality management systems certified by the International Organization for Standardization (known by its Greek-inspired acronym, ISO).

Glasgow posited that unlike other local manufacturers, who have to contend with costly and unreliable energy supply from the state-owned Guyana Power and Light Inc., both Banks DIH and DDL are energy self-sufficient, and this has augured well for their competitiveness.

DDL operates a biomethanization plant that provides power for the company’s boilers, while Banks DIH runs a number of Bunker C fuel generators.
The East Bank Demerara location of both Banks DIH and DDL also adds to their competitiveness, the economist asserted, since it gives them easier access to seaports and customs facilities. DDL controls a wharf at Diamond, and although “DDL still has to go through Trinidad to access the UK markets, but there’s still easier access to seaport facilities, given where they are located.”
Glasgow also credited shifts in the macroeconomic policy framework with boosting rum producers’ competitiveness. She said that, with the liberalization of the financial sector in Guyana, both companies have been able to own their own commercial banks.

Banks DIH and DDL have controlling stakes in Citizens Bank and Demerara Bank Limited respectively; and since, under the European integrated development programme for rum, a portion of the funding has to be provided by the companies before they can access assistance from the EU, both companies were able to do so, because “access to finance is not a problem for them, because they have their own commercial banks.”

She disclosed that Banks DIH and DDL are both part of the Public Private Dialogue Body (which was established under the National Competitiveness Strategy) as well as Industry Associations, e.g. WIRSPA, forums from which they influence the formulation of policies at both national and regional levels.
Other policy initiatives by Government which have helped make rum producers’ businesses more competitive, Glasgow iterated, include the establishment of a Commercial Court to deal specifically with commercial disputes. In addition, the Guyana Revenue Authority’s Total Revenue Integrated Processing System (TRIPS)and the Single Window Automated Processing System (SWAPS) helps to boost the administrative capacities of various institutions responsible for trade and investment issues. Prudent fiscal policies that have kept the inflation and exchange rates stable have helped, she stated.

Another boost to rum producers’ competitiveness comes from multilateral policy efforts such as the Lomé I agreement and the Caribbean Basin Economic Recovery Act (CBERA) which give rum producers’ exports duty-free and other preferential access to EU and US markets respectively.

Scope for expansion
Glasgow believes that “there is a lot of concentration” in the local rum value chain. From ageing to distribution, Banks DIH and DDL jointly control all aspects of the rum producing business, she insisted. She added that she was “quite surprised” to learn that the distillation and fermentation of molasses was monopolized by DDL.

She suggested there isn’t a desire to change that, because Angostura out of Trinidad had tried to establish in Guyana a distillery which would have given DDL competition, but it was actually blocked by the High Court.

“Given the fact that Guyana has been so successful on the world market on the efforts of only two firms, I think the scope for expanding the industry and allowing for more firms to come in is significant,” she opined.

She said: “Imagine how much further up the ladder we can go if we have a lot more players involved in the local rum industry.”

Glasgow also suggested that policymakers ought to seek out key areas where key support can be provided to firms and public-private partnerships’ developed e.g. in education, and infrastructure development, particularly a Deep Water Harbour. She advised, too, that there be continued production of aged rums, which is showing growth globally, and that markets, such as in Australia, which are large importers, blenders and bottlers of rum, be tapped.
The diaspora should be used to expand presence in current markets, such as in Canada and the US, she concluded.

(By Imran Khalil)