Industry

Keeping the Rum Running

Rum

Despite declining regional demand, rum is becoming more and more popular worldwide. With some of the best rums in the region, Panama is poised to take advantage of this growing global market.

Rum was first distilled on sugar plantations on islands in the Caribbean several centuries ago. Now that process has been refined using molasses and water, countries all over the region have adopted their own unique recipes. Its popularity around the world has made rum production in the Caribbean and Latin America boom in recent decades in order to satisfy global demand. Last year, the total value of worldwide trade for rum and tafia, a similar, cheaper rum-like product, was $1.4 billion. Given the trends of the last few years, that number could pass $2 billion in no time.

Like many of its neighbors, the rum business in Panama is a profitable one. It exports about three times the amount that it imports. In 2014, Panama exported $28.8 million worth of rum, while importing only $9.9 million. Rum ranks ninth in top exports for Panama, accounting for around 2% of its total exports, but more impressively also 2% of all the rum exported worldwide. Last year, the top destination for Panamanian rum was Chile, which accounted for $7.36 million, or about a quarter of all rum leaving the country. The next largest trading partners were the US at $3.9 million, followed by France and Bolivia at $3.2 million and $2.3 million, respectively.

These impressive numbers are made possible to a large extent by the several trade agreements to which Panama is party. The US-Panama Trade Promotion Agreement, which went into effect in 2012, ensures that rum will continue to flow freely north across the Gulf. The US is also one of the largest importers of hard liquor in the world, with rum being only second to whiskey, so this arrangement means potential growth there in one of its biggest overall trading partners. Panama is also part of a bilateral trade agreement with the EU, which specially grants them a larger quota than almost all other Central and South American countries beside Colombia and Peru. This gives Panama a unique advantage in the particularly competitive rum market of Latin America and Caribbean.

The clear-cut leader in the domestic rum market is Varela Hermanos S.A., which has about a 90% market share. Their two leading brands sold are Ron Cortez and Ron Abuelo, which was listed as “one of the top ten rums in the world” by The Costa Rican Star. The market at home does its fair share of rum drinking, too. Beer is the primary beverage of choice, accounting for around 70% of all alcohol consumed. However, at 25% are spirits and hard liquor, with wine lagging behind at a smaller 4%. The average Panamanian drinks eight liters of alcohol per year, which is a relatively modest amount when compared to the world leader Belarus at 17.5 liters, according to a recent study released by the World Health Organization.

This is no trouble, however, for the domestic rum market, which has become somewhat saturated due to an increase in wealthy foreigners moving to the country and the stronger purchasing power of the Panamanian balboa, which is pegged to the US dollar. This will mean that Varela Hermanos S.A. and other rum producers will shift their attention to try to capture a bigger slice of the global rum market from their Latin American and Caribbean competitors, particularly in the US and Europe. Despite a discouraging domestic market, Panama is poised to remain one of the major players in the world’s growing rum business. It is set to continue climbing the ladder as one of the top exporters in the region and around the globe.

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