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U.S. Virgin Islands Solidifies the Future of Cruzan Rum
Public-Private Partnership Locks in U.S. Virgin Islands as Home for Cruzan Rum, Supports Expansion and Environmental Sustainability at Distillery Owned by U.S.-Based Fortune Brands
Governor John P. de Jongh, Jr., U.S. Virgin Islands, and Cruzan VIRIL, Ltd., makers of Cruzan Rum, the flagship rum brand of Fortune Brands, tonight announced a 30-year public-private partnership that continues the diversification and growth of the Virgin Islands’ economy substantially and locks in an expansion of production capacity for Cruzan Rum in the Virgin Islands. The economic development and investment agreement, which now goes to the Virgin Islands Legislature for ratification, will help grow production of Cruzan Rum, generating a significant long-term revenue stream for the Virgin Islands government. It is a part of Governor
de Jongh’s innovative financial and economic plan to broaden and solidify the development of the Territory’s rum industry to strengthen the overall economy and fiscal health of the Virgin Islands.
Illinois-based Fortune Brands, the largest U.S. spirits company and the fourth largest premium spirits company in the world, acquired Cruzan VIRIL in September 2008. Immediately after the acquisition, the Virgin Islands Government initiated discussions with Fortune Brands to form a long-term relationship and grow production of Cruzan Rum, which had undergone multiple ownership changes in recent years. They share a commitment to keeping Cruzan Rum in the United States, promoting the economic stability and environmental sustainability of the Virgin Islands, and strengthening the U.S.V.I. valuable rum sector. The alliance marks the strengthening of the relationship between the V.I. government and Cruzan Rum, which has a heritage on St. Croix dating to 1760.
“The rum industry has historically served a critical role in the Territory’s financial self-sufficiency, one that was recognized by the federal government and Congress, as far back as the early 1900s, as the vehicle to assure our economic future,” Governor
de Jongh noted, adding, “At a time when all states and territories are under severe revenue pressures, we have determined that we must invest in our industry partners, and by doing so, invest in our future. The key to these agreements is that we understand that we must reinvest a portion of our tax receipts in the branding of our rums. Only brands can provide revenue stability over the long term, and branding takes money. But to do that, we had to be assured that we had a long-term commitment from our industry partners. These partnerships are a win-win for all of us.”
Under the 30-year agreement, the Virgin Islands government commits to continue to share the cost of molasses, a critical input in rum production, as it has for the past several decades. In addition, the VI government will continue to invest a portion of the tax revenues generated from the sales of locally produced rum in growing Cruzan Rum and the Virgin Islands rum industry.
Finally, the V.I. government will provide financing for the construction of a state-of-the-art wastewater treatment plant and to expand capacity of the Cruzan distillery by more than 50 percent.
The agreement utilizes the rum excise tax “cover-over” program, an economic development tool which returns to the U.S. territories the excise taxes on locally produced rum sold in the United States. The excise tax “cover-over” program, originally established by Congress in 1917 and extended to the U.S. Virgin Islands in 1954, has been an essential part of the economic relationship between the federal government and the U.S. territories for decades. The excise taxes are charged directly to the rum producer and are considered local territorial tax revenues.
The expansion of rum production on St. Croix will grow rum excise tax “cover-over” revenue available to the USVI to address some of the Territory’s key economic priorities, such as strengthening its pension fund by addressing underfunded liabilities, constructing schools, building infrastructure like roads, and promoting the fiscal health of the local government. The USVI anticipates the expansion will double the revenues generated from rum production at the Cruzan distillery from the existing $90 million per year in rum “cover-over” revenue. The Virgin Islands government, through its Virgin Islands Public Finance Authority, has $727 million in special revenue bonds supported by rum excise tax “cover-over” revenues.
“This is an exciting and proud day for all of us at Cruzan,” said Gary Nelthropp, president and master distiller of Cruzan Rum. “It’s exciting because we are putting Cruzan and Virgin Islands rum on a path to dynamic growth. And proud because this agreement demonstrates a commitment to securing Cruzan’s long-term future in America on St. Croix, building on a heritage of rum production that dates back to 1760 on our site.”
“This long-term agreement underscores our commitment to Cruzan and the premium rum category,” said Patrick Koley, senior vice president of strategy and corporate development for Fortune Brands. “We look forward to extending and strengthening the relationship Cruzan Rum shares with the U.S. Virgin Islands, and to further contributing to the economic stability and environmental sustainability of the U.S. territory that is Cruzan’s home.”
The agreement also advances Governor de Jongh’s overall economic development strategy of forming innovative partnerships between the USVI government and businesses. The rum sector is one of the USVI’s most important and successful industries, and one that Congress has provided the economic incentives to all its U.S. territories as a vehicle for growth. The Governor’s approach of locking in long-term production of Cruzan Rum and related rum products will provide invaluable stability to the USVI government’s finances.
Following the announcement tonight by Governor
de Jongh, the Virgin Islands Senate will consider the proposed agreement.
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