Rum deal: Brazil fights for global recognition of its sugar cane spirit cachaça

The two governments will negotiate in the coming weeks the terms of a bilateral agreement providing reciprocal protection of cachaça and tequila as protected designations that may only be used in accordance with applicable laws and regulations in Brazil, in the case of cachaça, and with the existing regulations in Mexico, in the case of tequila.

Under the terms of the agreement, imports and marketing of cachaça in Mexican territory will only be allowed to cachaça produced in Brazil in accordance with the laws and regulations in Brazil. Similarly, imports and marketing of tequila in Brazil will only be allowed to tequila produced in Mexico in accordance with the laws and regulations in Mexico.

According to Cristiano Lamêgo, president of the Brazilian Cachaça Institute (IBRAC), “the signing of the declaration of recognition is a historic moment for cachaça and the result of joint efforts by the Brazilian government and the private sector​”.

The process of recognizing cachaça in Mexico as an exclusive distillate of Brazil was initiated officially after Brazilian president Dilma Rousseff and her Mexican counterpart Enrique Peña Nieto signed the declaration in late May.

Negotiations between the two countries were underway for some years, but it was from June 2014, with the renewal of an agreement between Brazil’s IBRAC and Mexico’s Tequila Regulatory Council (CRT), that the drive around the mutual recognition process received greater attention from the governments.  

Potential for growth?​

Brazil has almost 2,000 duly registered cachaça distilleries that control around 4,000 cachaça brands. IBRAC estimates these distilleries have an installed production capacity of approximately 1.2bn litres of the beverage per year, although annual output is closer to 800m litres.

Exports of cachaça are currently short of market potential and IBRAC hopes that global recognition of the spirit will help to boost sales. Last year cachaça was exported to 66 countries by more than 60 companies, earning Brazil $18.33m in export revenue from the spirit, or 10% more than in 2013, according to IBRAC. Sales volumes also increased to 10.18m litres in 2014, up by more than 10%.

The rampant success of tequila in the international market is an example that Brazilian authorities are keen to emulate when it comes to cachaça. While tequila exports earned Mexico revenues of more than $1bn in 2014, Brazil exported less than $20m of the Brazilian distillate in the same year.

While tequila is protected in more than 46 countries, including the EU, cachaça is now protected only in three (Colombia, US and Mexico). With the recognition of cachaça, Lamêgo believes that Brazilian companies will increase their investments in the Mexican market and this could lead to an increase in exports.

Troubled history​

Cachaça is a distilled spirit made from fermented sugarcane and is the base ingredient of the Brazilian national cocktail, the caipirinha. With this signature Mexico became the third country in the world to recognize cachaça as an exclusive spirit of Brazil.

However, the first country to lend its recognition was Colombia in 2012, followed by a more important recognition by the USA a year later. Nevertheless, the US gave its recognition only after a negotiating process that lasted more than a decade.

The problem that cachaça faced in the US market was that Brazil had to label cachaça as Brazilian rum, since 2000. Under Brazilian law, cachaça is a Brazilian distilled spirits product with an alcohol content of 38 to 48% by volume at 20 degrees Celsius, obtained from the distillation of the fermented must of sugar cane.

Nevertheless, in the United States, before a critical February 25, 2013 rule of the Alcohol and Tobacco and Trade Bureau (TTB), cachaça products were simply lumped up in the same category as rums under its distilled spirits standards of identity regulations at 27 CFR 5.22(f).

The 2013 TTB ruling meant the US had to recognize cachaça as a typical and exclusive product of Brazil, but in return, Brazil agreed to recognize Bourbon Whiskey and Tenessee Whiskey as distinctive products of the USA.

Consequently, the TTB amended 27 CFR 5.22(f) to recognize cachaça as a type within the class designation “rum” that would be recognized as a distinctive product of Brazil made in compliance with Brazilian laws. Thus, a qualifying product may simply be labeled as “cachaça” without the term “rum” on the label (just as a product labeled with the type designation "Cognac" is not required to also bear the class designation “brandy”).