Explore the intriguing rivalry between Puerto Rico and the U.S. Virgin Islands over the lucrative rum industry. Discover how a congressional tax scheme turned local economies into battlegrounds for brand dominance, particularly around Captain Morgan's controversial move. Uncover the economic implications of rum subsidies and how both territories scramble to secure federal funds. The episode dives deep into cultural identities intertwined with rum production, revealing the unintended consequences of competition in the spirit world.
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question_answer ANECDOTE
Virgin Islands' Economic Struggles
In 2008, the Virgin Islands were struggling economically.
The governor announced a potential deal with Captain Morgan.
insights INSIGHT
Giveaways to Captain Morgan
Neville James scrutinized the deal and found giveaways to Captain Morgan.
These included subsidized molasses, marketing, and production incentives.
question_answer ANECDOTE
Diageo's Involvement
Neville James discovered Diageo owned Captain Morgan and other major brands.
He saw the deal as Diageo taking a cut of federal rum tax money.
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When you buy a bottle of rum in the United States, by law nearly all the federal taxes on that rum must be sent to Puerto Rico and the U.S. Virgin Islands. It's an unusual system that Congress designed decades ago to help fund these two U.S. territories. In 2021 alone, these rum tax payments added up to more than $700 million.
Puerto Rico and the Virgin Islands split the money according to how much rum each territory produces. And the territories produce a lot of it — especially Puerto Rico, which single handedly supplies the majority of the rum that Americans drink.
But in 2008, the U.S. Virgin Islands pulled off a coup. It convinced one of the largest rum brands in the world, Captain Morgan, to abandon Puerto Rico and to shift its operations to the tiny island of St. Croix.
This was the beginning of the Rum Wars.
On today's show, the story of how a scheme designed to help Puerto Rico and the U.S. Virgin Islands turned them into bitter rivals. And how it ended up putting hundreds of millions of dollars a year — U.S. taxpayer dollars — into the pockets of big liquor companies instead.
This episode was hosted by Jeff Guo and Sarah Gonzalez. It was produced by James Sneed with help from Sam Yellowhorse Kesler. It was edited by Molly Messick, engineered by Cena Loffredo, and fact checked by Sierra Juarez. Alex Goldmark is Planet Money's executive producer.
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