Brown-Forman’s Diplomatico Purchase: Beneath the Surface

Brown-Forman’s recent announcement of its planned acquisition of Venezuela’s Diplomatico rum has rum-industry watchers pondering the ramifications. America’s largest spirits conglomerate, and home of Jack Daniels, is finally dipping its toes into the rum space in a big way; Diplomatico rum is among rum’s best-known brands and sold in over 100 countries.

However, a brief, easily overlooked passage in the announcement has raised some questions in some circles:

Upon completion of the transaction, Brown‑Forman will add the Diplomático Rum family of brands to its portfolio and acquire a production facility located in Panama.

As you’d expect in certain corners of the internet’s vast wastelands, some have wondered if Diplomatico’s production will move to Panama. The announcement wisely short-circuits the question:

Destillers United Group S.L. will continue to produce and age the unique, carefully-crafted, and complex Diplomático Rum in their original distillery at the foot of the Andes mountains.

Still, we must ask: What exactly will this production in Panama be doing? The answer is innocuous enough but raises an interesting question I’ll return to later. But first, let’s review some basic facts regarding Diplomatico and the acquisition.

Diplomatico / Destilerias Unidas Background.

In 1959, Seagram and several large Venezuelan liquor distributors formed Licorerias Unidas (LUSA,) with Seagram owning a 51 percent majority share. In 1992, Seagram’s took complete control of LUSA, which then came under Diageo ownership a decade later when Diageo and Pernod Ricard split Seagram’s assets.

In 2003 a group of Venezuelan spirits investors led by Jose Rafael Ballesteros Melendez purchased LUSA and renamed it Destilerías Unidas SA, aka DUSA. The new owners agreed to continue supplying rum to Diageo, whose Venezuelan brands include Pampero and Cacique. Although best known for Diplomático rum, DUSA also makes whiskey, gin, vodka, brandy, and other alcoholic beverages. Its distillery capacity places it among the Caribbean’s largest distilleries.

It seems clear that Brown-Forman is purchasing just the Diplomatico rum brand and not the associated production company, DUSA. Surely a long-term supply contract is in place between DUSA and Brown-Forman.

But what about this Panama production facility?

Panama

A few moments spent trawling through public business records shows that Ballesteros (DUSA’s CEO) owns several other companies, including a Panamanian company, International Bottling Services S.A. A 2018 facebook video highlights the opening of the bottling facility and shows Ballesteros at the opening ceremony and Diplomatico bottles on the lines.

Furthermore, US import records show that this Panamanian bottling company has sent dozens of shipments of Diplomatico rum (and possibly other alcoholic beverages) to the US. Some shipments have gone to E&J Gallo, Diplomatico’s importer, while others have gone to a DUSA subsidiary, Destilerias Unidas Corporation, based in Doral, Florida.

At this point, it’s clear that Diplomatico bottles at least some of its rum in Panama. It’s not a stretch to surmise that this bottling plant is the “production facility” referenced in Brown-Forman’s acquisition announcement.

That Diplomatico bottles in Panama isn’t surprising given Venezuela’s political turmoil, instability, and hyperinflation. It makes sense to outsource this aspect of its production to a locale where large-scale shipping and receiving is far more stable. Furthermore, with the ongoing tensions between the Venezuelan and US governments, shipping rum from Panama rather than Venezuela is likely less of a headache for all involved.

Diplomatico isn’t the only rum bottled outside the country where it was made. It’s more common than most people realize, and at least one of the Caribbean’s most beloved brands ships rums to Canada to bottle for the North American market.

Thus far, everything about Diplomatico’s Panama bottling operation is entirely reasonable. However, there is a potential issue lurking below the surface. (I emphasize potential in what follows.)

Denomination of Origin: Ron de Venezuela

In recent years I’ve written extensively about the many esoteric details of various Caribbean cane spirit geographic indications (GIs,) including Venezuela’s; my summary of its GI is here. Venezuela’s rum GI was established in 2003 and updated in 2019.

Of note in the original 2003 GI is this passage:

Artículo 4.- Las zonas de producción de los rones amparados por la Denominación de Origen Ron de Venezuela “Ron de Venezuela” están constituidas en principio, por los Estados que fueron reconocidos como tales en la Resolución de Declaratoria de Denominación de Origen Ron de Venezuela de la misma, los cuales para mayor ilustración se citan adelante, y que hacen parte del territorio de la República Bolivariana de Venezuela.

…

Entendiéndose por zona de producción aquella relativa al:

1. Cultivo y proceso de la caña de azúcar;

2. Fermentación;

3. Destilación;

4. Añejamiento; y,

5. Envasado.

Or in English via Google:

Article 4.- The production areas of the rums covered by the Denomination of Origin Ron de Venezuela “Ron de Venezuela” are constituted in principle, by the States that were recognized as such in the Resolution Declaring the Denomination of Origin Ron de Venezuela of the same, which for further illustration are cited below, and which are part of the territory of the Bolivarian Republic of Venezuela.

…

A production area shall be understood as that relating to:

1. Cultivation and processing of sugarcane;

2. Fermentation;

3. Distillation;

4. Aging; and

5. Packaging

In brief, this passage defines what parts of production must occur within Venezuela in order for a bottle to use the protected wording Ron de Venezuela. The above requirements are typical of spirit GIs. However, item #5 — packaging, give me pause. It suggests that Diplomatico rum bottled in Panama isn’t eligible to use the Ron de Venezuela designation. This is kind of a big deal if so.

In fairness, the passage above is from the 2003 version of Venezuela’s GI. It’s possible that the 2019 GI revision eliminated this requirement. Perhaps Venezuela’s large rum exporters felt that the economic situation had made bottling in Venezuela unduly burdensome, so they removed the local bottling requirement.

Unfortunately, we can’t know if that’s the case; the text of the 2019 GI revision hasn’t been made public. I’ve made inquiries with people representing the DOC Ron de Venezuela governing body and high-ranking people at Venezuela’s largest rum makers. Although everyone contacted professed a desire to help, everything led to a dead end.

In July 2022, the DOC Ron de Venezuela body applied to the European Union for recognition of the Ron de Venezuela GI (PGI-VE-02625). So far, the EU hasn’t approved the request. Should it be approved, the EU will publish the EU-approved version of the GI, and we can see what it says.

Naturally, the DOC Ron de Venezuela body could publish the 2019 GI revision themselves, but thus far, they haven’t. My take is that a country with a GI they’re proud of and want widely recognized should have little or no reason not to share it in its entirety. In its absence, curious folks like me will ask questions like the above.