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Colombian liquor industry faces challenge
The Miami Herald / May 15, 1996

By Larry Luxner

BOGOTA -- Colombian legislators are debating a bill that would preserve the government's traditional monopoly over liquor production, but only if distilleries maintain acceptable levels of efficiency and productivity.

Otherwise, production of aguardiente -- Colombia's national drink -- and other popular spirits would pass to the private sector.

The bill, known officially as the Ley de Regimen Propio de Monopolios, is supported by Enrique Guio Reyes, executive president of the Colombian Liquor Industry Association (ACIL in Spanish), which represents all 14 state-owned liquor factories.

"We're working with the government on this law right now," said Guio, interviewed last month in Bogota. "It provides a way to measure efficiency. If these distilleries don't become more efficient, they'll be privatized."

Of Colombia's 33 departments or states, 14 have their own liquor factories, producing mainly aguardiente, an unaged, anis-flavored spirit distilled from sugar-cane molasses. The drink, popular among lower- and middle-income Colombians, was mentioned in official papers as early as 1772, when Viceroy Pedro Messia de la Carde declared its consumption "noxious to the public health" and a threat to religion and virtue.

These days, the price of a 750-ml bottle of aguardiente is fixed by the government at 4,800 pesos (around $4.80). Rum, by comparison, costs around 6,000 pesos ($6.00) and its price is not regulated.

In 1995, national production of aguardiente came to around 133 million bottles. About 90% of that was produced by the four biggest distilleries: Fabrica de Licores de Antioquia (FLA), Empresas de Licores de Cundinamarca (ELC), Industria Licorera de Caldas and Industria de Licores del Valle.

Daniel Villegas Diaz, manager of FLA and a former senator in the Conservative party, says last year's sales came to $185 million, of which an astounding $150 million was clear profit. This year, the plant -- which employs 580 people and is one of Medellin's largest employers -- expects to sell 66 million bottles worth $235 million.

According to Francisco Piedrahita Echeverri, executive president of the Medellin Chamber of Commerce, Colombian law permits the importation but not the production of hard spirits. Originally viewed as a way to generate revenue for the departments and protect public health by guaranteeing production standards, traditional state ownership of liquor factories is strongly supported by departmental governments, many of which fear a sudden loss of pesos if the distilleries are privatized.

"The liquor industry has always been a state monopoly. It's a source of revenue," says Piedrahita. "To produce aguardiente costs very little, and they have a very high profit margin. What they make pays the salaries of teachers in Medellín and other cities."

Colombia's second-largest liquor producer is ELC, which distills and bottles Nectar aguardiente for Bogota and other cities in the department of Cundinamarca. The company, founded in 1905, has 350 employees. This year, production will hit 32.4 million bottles, of which 92% will be Nectar aguardiente and the remaining 8% Rum Vero, a product slated for eventual export to the United States, Germany and Central America.

Hector Enrique Leon, ELC's commercial adviser, says that while his own distillery earned $2.2 million last year, most of Colombia's smaller state-owned distilleries -- includ-ing those in the outlying departments of Tolima, Cauca, Narino, Boyaca, Huica, Meta, Santander and Putumayo -- are losing money.

"I don't see any likelihood of the larger companies being privatized in the near future. We're not receiving any subsidies from the government. On the contrary, we're giving money to the state," he said. "On the other hand, the smaller businesses are poorly run. Many of them are burdened by the high cost of pensions for retired workers."

As a result, he said, whereas ELC can produce a 750-ml bottle of Nectar for between $1.00 and $1.10, the smaller companies -- saddled with too many employees foisted upon them by politicians who reward supporters with government jobs -- might have to spend between $1.60 and $1.80 to produce a similar bottle.

"They're faced with a dilemma -- to keep producing and losing money, or contract with us and improve their profit margins," says Leon. "We've received requests from three of these companies so far. We can do a year's production for these three in one month."

One reason smaller companies are suffering is declining consumption of their chief product, aguardiente, in the face of new competition from four global conglomerates -- United Distillers, Seagram's, Pedro Domecq and International Distillers & Vintners. According to a January 1996 article in the newspaper La Republica, "this year will be decisive for those companies linked to the liquor business. The entry of these four multinationals into the Colombian market has sounded an alarm for local importers and state liquor producers."

Guio, former manager of Industria Licorera de Boyaca, agrees. "Our liquor industry is basically flat. Tastes are changing. The Colombian consumer is now drinking more beer and imported liquors. One of our objectives is to mount a public-relations campaign to promote national drinks."

To that end, Colombia's biggest aguardiente producers are looking to export their product. In 1990, after overcoming opposition from Puerto Rico and the U.S. Virgin Islands, the Colombian government won the right to export 4,500 products including aguardiente -- though not rum -- to the United States duty-free under the Andean Trade Preference Act (ATPA) as a reward for Colombia's efforts to fight drug trafficking.

On March 1, however, the Clinton administration decertified Colombia -- meaning that it now equates Colombia with such pariah nations as Iran, Syria, Burma and Afghanistan when it comes to drug-interdiction efforts. The decision could have far-reaching implications for the Colombian economy, such as possible removal of ATPA trade preferences.

Guillermo Schafer, general manager of ELC in Bogota, called Washington's ruling "anachronistic and counter-productive," adding that "we're not worried about decertification. We export very little. But for the country, it's very negative."

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