Exclusive: CEO Luis Roberto Rivas Shares Ron Viejo de Caldas’ Secret Recipe For Liquor Dominance With Finance Colombia
Colombia has a unique relationship with liquor. In the early 20th century, the national government created regional government-controlled monopolies for the production of distilled spirits. The domestic industry has been dominated by aguardiente, also known as “guaro”—an inexpensive anise flavored liquor, and rum. Unlike Caribbean rum, most Colombian rum is not distilled on-site, but produced with imported “tafia” alcohol that is then aged, and in some cases flavored.
Throughout the 20th century, Colombian rum producers did what one could expect from government monopolies. Produce a pedestrian product, managed to maximize income to the state, produce a “good enough” product, and rely on regulation to keep out competitors. But when Luís Roberto Rivas took over the Manizales-based Industria Licorera de Caldas in 2016, he did what few would expect from a local politician who had served as mayor of Manizales, and in Colombia’s national legislature. He took a company plagued with contracting scandals and corruption, and ran it like a competitive, modern company.
After Colombia (somewhat) modernized its liquor industry in 2016, ILC went to compete, taking over market share in other departments (provinces) of Colombia, most notably Antioquia, where it has dethroned the harsher tasting Ron Medellin from its dominant home-town position. ILC is now an exporter of rum, aguardiente, and other alternative liquor products, and has entered into international production agreements with global liquor giants.
Finance Colombia Executive Editor Loren Moss traveled to Manizales for an exclusive discussion with ILC CEO Luis Roberto Rivas to understand ILC’s secret recipe for success.
Finance Colombia: I am here with Luis Roberto Rivas Montoya, the general manager of the Industria Licorera de Caldas. Now you have grown a lot, you are already the largest rum producer in all of Colombia, right?
Luis Roberto Rivas: We, let’s see, we are a Colombian government Industrial and Commercial company from the department of Caldas. This is a 100% public company called the Caldas Liquor Industry that operates as an industrial and commercial company of the government, and we are the rum market leaders in Colombia. In fact, as of 2021, we had a market share of 66% according to Nielsen.
In Colombia. We sell per year, we invoice per year, in units, in units sold of rum produced at 750 milliliters, which is how it is measured the category here in Colombia, we sold 32 million bottles, which is more or less, 2 million, almost 2.5 million cases a year.
Finance Colombia: It’s interesting because it wasn’t always like that. Nowadays you have competition from other departments, but you are growing very fast.
Luis Roberto Rivas: We have grown fast; we have grown very well. Let’s say that there was a great opportunity that was offered to a liquor company like this one and that is with the opening of borders generated by the new monopoly legislation, the liquor regime itself, which eliminated the monopoly, we are now able to sell our rum to any territory in Colombia. That is a great advantage because there were regulations in place from the colonial era.
Finance Colombia: Yes, and now you have to compete with quality and not by geography.
Luis Roberto Rivas: And we have had a rum, a high-quality product, well-known in Colombia with a lot of positioning, so we managed to enter important departments like Antioquia.
Antioquia is perhaps the most important department in the rum and aguardiente category as it is the largest consumer per capita. Antioquia has 34% more or less of that market because Antioquia consumes a lot of rum and aguardiente.
Finance Colombia: It’s interesting. And how does this work, because I remember my first time in Colombia, which was around 2004, and I’m curious there is a rum in Bogotá, another rum in Cali and…how does it work, what is the history of that law, how it worked and when changed?
Luis Roberto Rivas: What happens is that historically each liquor company had its own liquors (aguardiente and rum). So, in Cundinamarca, the Cundinamarca Liquor Company has its aguardiente Nectar and its rum Santa Fe; the Valle (del Cauca) company has its aguardiente Blanco and its rum Marqués, Antioquia has its Antioqueño Aguardiente and its Ron (Rum) Medellin, and we, the Caldas Liquor Industry, we have had Aguardiente Cristal and Ron Viejo de Caldas.
What happens is that in Colombia we have positioned ourselves much better than the rest, making us the strongest rum producers in the Colombian market. Now, by signing free trade agreements as well as Colombia’s incorporation into the OECD, the Colombian government had to improve its legislation allowing open competition between private and public companies resulting in a level playing field.
Then in 2016, due to a request from the OECD countries, the Colombian government introduced a bill numbered 1816 of 2016, which came into force on January 1, 2017 that established a new regimen…It does not mention commercial monopoly but rent monopoly that is to say, that the only thing on which there is a monopoly is on rents (excise taxes), the rents that are generated from the sale of a bottle, which has to do specifically with consumption taxes, all those taxes are national revenues that were transferred to the departments. The only remaining monopoly is on those rents.
So, with no commercial monopoly the entire border opens. At that moment, when borders opened, in the past, to sell in the other departments, an introduction agreement had to be signed with each governor, with each department stating that ‘we are going to start selling in Antioquia, so let us sign an agreement to authorize the selling of my products (Aguardiente Cristal and Ron Viejo de Caldas) in exchange I will authorize you to sell your products in my department.’ With that, many departments had closed the borders and protected their liquors.
Now as an active OECD member, there was very strong pressure for foreign products to enter the market, especially whiskeys: low-cost whiskeys, tequilas and gins entered the market resulting in a new, very strong market dynamic. So, another dynamic was generated within the liquor business, and we took advantage of that great opportunity. Why? Because in the past, for instance, we could not sell in Antioquia.
Or if we wanted to sell our products in Cundinamarca, there was this limitation, in which, we could not sell more than so many units, a quota, and those units had to be 20% marked up compared to their similar product, making it impossible for us to compete.
“We have to adapt to those conditions of the private sector and that can be done with knowledge, with technology, with innovation, with inclusion.” – Luis Roberto Rivas
Finance Colombia: This is the reason because before, there were no private companies in the sector. In the rum sector there were only those from the government. Now, I have seen companies with very expensive rum not intended for mass consumption, but I have seen that it seems to me that it is more for export purposes.
Luis Roberto Rivas: Many rums, many liquors have entered. Here, there was a lot of competition because this is an attractive market. That is, the aguardiente market alone was about 100 million bottles. That has obviously fallen, but it has obviously fallen more because of the entry of other products. That is because low-cost whiskeys, tequilas and gins have entered the market which has made the category more dynamic. And now, products have entered, low-cost rums from other countries, hard discount chains that have brought their own rum which moved the market, and also there are private rum companies that are already producing their rum in Colombia. So, there are already products manufactured in Colombia by private companies as a result of the bill reform.
Finance Colombia: But despite all that, although there is more competition and also imports from other countries, your results are very impressive. In the first half of 2022, if I am not mistaken, your revenue shows an increase of 31%, which is an all-time high. I imagine that you might have felt afraid of the opening of the market to international competition and lose the protections, but you have done very well. Why?
Luis Roberto Rivas: Because there was a change, let’s call it a rupture in 2016. On Jan 1, 2016, the way the company was managed changed for good. This is a company that, as a public company, had many difficulties with political management.
Given that the general manager is appointed by the governor and managers are appointed by the board, but the governor is in charge of the board. That had many problems for these companies, because these are companies subjected to politics, clientelism and many other complex issues associated with that. Here you could hire individuals who did not have sufficient knowledge of the business.
In 2016, a governor by the name of Guido Echeverry Piedrahíta won the election, now he is a Senator, and decides to manage the company in an entirely different way. He contacts me and invites me to become the general manager and also gives us the autonomy to appoint management teams, not the ones from the parties that supported him, but of the most qualified personnel we can hire through an external process led by an organizational psychologist.
What did that mean? We understood that even though this is a 100% public company but in competition with the private sector, we have to adapt to those conditions of the private sector and that can be done with knowledge, with technology, with innovation, with inclusion, right? With conscious strategies with a lot of cooperative work, with all that then what we started, we started immediately, having very profiles of key management positions.
So, we hired an individual with a track record in multinational mass consumer products industries and he was appointed to be the marketing and sales manager. We hired experts in manufacturing with 10 years of experience in multinational companies, all from Manizales. We also hired a person with extensive cost knowledge to manage the financial and administrative side of the business and then we started to put together key important technical areas for these types of companies. So, we hired a lady to launch an area called Research, Design and Responsible Innovation. She is an expert in Industrial Design and has a master’s degree in consumer psychology. So, we began to change the way we see and manage the business.
In the past, this was a business that was managed with a lot of let’s say, traditions that came down from the colonial era. Then we stopped wholesale distribution and started store to store distribution. We also started to work very hard with brand building.
In addition, work on manufacturing efficiencies started in production units, performing extensive demand and production planning. Then we contacted distributors, because we also have private distributors and with them we proposed a very clear strategy. We said ‘you are our allies. We need to work together with the same strategy. So, let’s sit down, we are not interested in filling your warehouses, what interests our company is that you fill the warehouses and the shelves at the point of sale (retailer).
And that our products rotate quickly, and then we began to change the entire marketing, pricing and sales strategies in conjunction with lots of product innovation. Now, in 2000, this was a company that in 2015, as of December 31 invoiced $119 billion COP (Colombian Pesos), last year we invoiced $358 billion COP. (Using the American definition of billion as 1,000 million)
And this year, we are on track to invoice around $410 billion COP. This was a company that back in 2019 had 34% market share in the rum category. In 2021, according to Nielsen figures, we had 66% of the rum market. We had 7% aguardiente market share and now we have 12%. In this category, the fight is more difficult because we have many departments in which where we cannot sell our product, as this is the only product that has safeguards from the ethnic point of view.
So there we have restrictions. Now, back in 2015, this company produced $2.7 billion COP in profits. Last year, we generated $78 billion COP in profits. A company with an EBITDA of $15 billion COP. Now, we closed with an EBITDA of $90 billion COP. It is a company that has changed a lot, it has become much more dynamic, and we have invested a lot in modernization.
We not only transferred, which is a very important figure, we transferred $532 billion COP in consumption tax to all departments, and to Caldas, we transferred $86 billion COP just to the Department of Caldas. 60% of the profits go to the department and we retain the other 40%.
That meant a whole change in orientation as we began to deliver results…As mentioned, in 2015 we made profits of $2.7 billion COP but in fact those were not operating profits. At that time the company had an operating loss of $75 billion COP. Actually, we received additional income from an insurance policy because of a 2015 fire; we closed with $2.7 billion COP. We closed 2016 with $30 billion COP in profits, so you might ask what happened in those two years?
We closed 2017 with $40 billion COP, 2018: $50 billion COP, in 2019: $59 billion COP, despite the pandemic we produced $36.5 billion COP, and last year $78 billion COP. So, it has been very interesting because to that extent we have been able to transfer in six years more than $100 billion COP, more than $100 billion COP, around $160 billion COP to the department for social investment purposes, not including consumption tax.
Those funds, once transferred, are discretionary for the governor to use in social programs which include cultural activities, sports, municipal musical bands. So, the change has been very big. We had a presence in 24 departments, now we have presence in 31 departments. We are yet to sell in La Guajira!
And we do not only manufacture our own brands but we also contract manufacture Platinum Aguardiente for Chocó, Putumayo Aguardiente, Aguardiente Extra for Caquetá, Aguardiente Extra for Santander,and we also are the contract manufacturers for a very important multinational company called Diageo, the biggest liquor company in the world. All the Lulo flavored Smirnoff consumed in Colombia, is manufactured by Industria Licorera de Caldas beginning four years ago, and we just renewed the contract.
We have done very well and that has been a very interesting experience. It was something very important for us because for many years Diageo conducted extensive studies of the liquor Industry to identify its partner. They are extremely careful.
Finance Colombia: They protect their brand.
Luis Roberto Rivas: Right. So, in the end they selected us because from the technical standpoint as well as other key matters, we were the most important. So they came here, invested and it is going very well. That has been fundamental because they have helped us to improve our production quality standards because we have to rise to international levels. And that has been a great learning [experience] for our entire technical team.
Finance Colombia: That is a big step for you given that you were already exporting, but becoming a more international company. Because in the past, the industry in Colombia was closed but now with the OECD, it is how the world sees Colombia and Colombia sees the world. Now tell me about the internationalization, how are you doing and what are your plans in that regard?
Luis Roberto Rivas: For us, accessing international markets is a fundamental strategy. It is not easy for a public company. It is not easy to venture into international markets due to contracting conditions as well as business intricacy. Is much easier to move in the world of private businesses whereas in the public sector is a little more difficult.
However, we have developed a strategy. Let’s say that we have changed the focus. This company has been exporting for several years, mainly to the United States market but had focused a lot on Cristal Aguardiente.
We changed the focus and have oriented towards selling Ron Viejo de Caldas Rum. Why? Because we believe that aguardiente is an ethnic product and when selling abroad it is intended for Colombians only.
Finance Colombia: Right. I have seen aguardiente ads in Miami.
Luis Roberto Rivas: Correct. So, what do we want now? We want to sell rum because it is a product that is consumed by anyone regardless of nationality. So, we are working on that strategy and are in the process of selecting qualified distributors with a lot of knowledge of each region, with experience, expertise, working capital, with everything. Back in 2015-16 we had presence in 4 countries and today, we have presence in 18 countries and hope to reach 22. We are growing very well in Ecuador, Peru, Chile, Bolivia, in the US, Panama, Honduras, Costa Rica, Spain, Italy. Now, we are starting to sell in France and Switzerland. We are selling in Austria and through Austria we are selling in Russia.
Finance Colombia: A month ago, I was in the republic of Georgia and I went to a bar, and to my surprise, the first spirits they offered were rum and pisco!
Luis Roberto Rivas: What kind of rum?
Finance Colombia: To be honest with you, it was Zacapa.
Luis Roberto Rivas: Zacapa. Yes. We are selling good in that area.
Finance Colombia: Yes.
Luis Roberto Rivas: We are already selling…it has sold well over there. We are very happy because with this strategy, we are doing well. The issue with that is that it is a long-term scenario. It is mostly a matter of sowing, sowing, sowing.
Finance Colombia: You need to grow the market, the brand. When you arrive to a market with an unknown brand you need to establish a relation with bartenders so later they can offer your brand. If the customer is aware of pisco, someone from Georgia who does not know South America and you offered tarragon pisco, well that was a first time for me. So they can offer to the final consumer the new brand.
Luis Roberto Rivas: The availability of new products in Colombia, new categories and the changes that have taken place in consumer taste are leading to new experiences. What does the consumer want? Consumers today want new cocktails, new flavors, spirits with less alcohol content, longer nights out.
Finance Colombia: You have mentioned aguardiente which is a very Colombian product but one thing that I have noted is that consumption of aguardiente is slowly going down. I guess that is because in Colombia, the Colombian consumer taste is changing. I remember my first time in Colombia there was very little selection in the way of wine. There was Gato Negro and Casillero del Diablo. And now there are a lot of wine offerings. Coffee, the good coffee was all being exported, but today you have high end, artisan coffee shops. I imagine that the Colombian consumer is changing or is it because there is more offering?
Luis Roberto Rivas: Well, yes. I would say that there are several factors. To start, consumer taste has been changing, right? New liquors have entered the market and that has made it much more dynamic. Wine consumption had a drastic increase, record highs in Colombia. Wine have been the winner and with the pandemic they were the big winners.
Whiskeys have also entered strongly to compete with it and all those products including tequila, what we have found is that the category that has been hit the most is the aguardiente category, which used to be the biggest one.
Consumers are switching to other liquors and other experiences. In addition, I have the perception that the aguardiente category was in hibernation mode for a long time. Meaning, no innovation, no big changes, no major improvements for a long time. No presentation improvements and that, in addition to the new offering as well, and consumers having the option with new tequilas, new wines, new whiskeys I believe all of that led consumers to change consumption patterns.
Finance Colombia: Yes. As I have seen, for urban youth drinking aguardiente is not as chic as before.
Luis Roberto Rivas: Right. Right! Exactly! In addition, the consumer is very aspirational. In addition, over time the Colombian market with all those changes has become more aspirational and that is the reason we made an interesting proposal with the yellow aguardiente from Manzanares.
Finance Colombia: Mmmm. Is that a new product, right?
Luis Roberto Rivas: No. It is not a new product. The yellow aguardiente from Manzanares is the pioneer of aguardiente in Colombia. It was launched in 1885. It was the first one. Now, with the yellow aguardiente we did a complete revamp. Lowered its alcohol content from 32° to 24°, which is the alcohol level that is selling the most in Colombia, kept its anise taste, improved the formulation, changed to a prettier bottle, modified the labels and included a new cork cap with a built in measure. Now with all those changes when you put a bottle of yellow aguardiente on the table, you are not lowering your social status. It is actually providing some sort of status to the consumer.
Finance Colombia: Yes. that is important because we are in the social sphere.
Luis Roberto Rivas: Exactly. As a result, the yellow aguardiente has become one of the most important innovation products of the liquor Industry and will be even stronger next year.
Finance Colombia: Talking about other products, you have introduced gin to the market?
Luis Roberto Rivas: Right. We have expanded the rum portfolio including additional brands. We launched a rum called White Oak which is a white rum intended for cocktails.
This was a company that back in 2019 had 34% market share in the rum category. In 2021, according to Nielsen figures, we had 66% of the rum market.
Finance Colombia: OK.
Luis Roberto Rivas: We also launched a rum liqueur with 29° alcohol content instead of 35°.
Finance Colombia: So is that the only difference?
Luis Roberto Rivas: Alcohol content is 29°.
Finance Colombia: OK. Because I contacted Hector (Hector Bernal, ILC Brand Ambassador) and asked him, “is this real rum?” He assured me that it is.
Luis Roberto Rivas: INVIMA states that a liquor to be considered a rum needs to have 35° alcohol level, anything less than that has to be called rum liqueur. We also have a cream of rum called Cheers. It’s spectacular, which included with the Ron Viejo de Caldas brand is obviously a rum-based cream based on non-animal vegetable milk, so it is much more pleasant, much healthier, not that sweetened like the competition’s whiskey cream.
Finance Colombia: Because there are many people into fitness and want to have a cocktail but if there is too much sugar content, they would rather not drink it.
Luis Roberto Rivas: And we decided to access different categories other than aguardiente and rum with our gin. A gin called Bosque de Indias. A gin with a history around the botanical expedition and the importance of botanists in the elaboration of a good gin, and it turned out to be sensational.
Finance Colombia: Interesting.
Luis Roberto Rivas: Later you will taste the gin and Cheers!
Finance Colombia: OK. Thank you! It is intended for customers that do not want that much sugar, into fitness.
Luis Roberto Rivas: The yellow aguardiente from Manzanares has no sugar in it and has a great advantage: It does not give you a hangover! It is great. Drink it cold and put it in the fridge cold. It is selling like crazy. In Bogotá it is selling super well.
Finance Colombia: You mentioned that the yellow aguardiente comes in a very nice bottle, and that is a challenge and a topic for discussion: Bottle supply.
Luis Roberto Rivas: Right. We have faced a hurdle there and that is a national level issue which was generated as a consequence of the lack of supply of raw materials for glass production. For us, this is one of the most serious problems of the pandemic: The breakdown of the supply chain. Quite an issue. The largest glass supplier in Colombia, Peldar, which is Owens Illinois, that supplies us and all those who demand glass, including those who produce coffee.
In fact, there is a factory in Chinchiná called Buen Dia Coffee that also has glass sourcing issues. So, Peldar has had difficulties supplying the entire market as a result of that break in that supply chain so, as a strategy to keep our market position, we had to import glass from China. Last year, we imported 6 million bottles and this year 15 million, and surely next year we will have to import additional bottles. It is obviously a complex issue as our cost does increase thus reducing gross margin.
Finance Colombia: Yes.
Luis Roberto Rivas: That is a must. We need to be available on the shelves. It’s a complicated issue. It hasn’t been easy, but fortunately we were able to find a good supplier. We encourage supplier development and to this date so far, we haven’t had any issues .
Finance Colombia: That is a global issue. Car makers around the world had to stop production due to the lack for electronic circuits.
Luis Roberto Rivas: Exactly. One of the problems is with caustic soda because that is essential for glass production, and it has been depleted worldwide because of the demand for microchip production, batteries and solar equipment.
We also had a problem, last year, or at the beginning of this year, with the cork caps made in a factory located in Ukraine. So, we had to develop a supplier in a different country to solve that matter. No one imagined Ukraine’s importance as a world supplier of lots of raw materials, cereals and fertilizers.
Finance Colombia: Yes. Right. People don’t know. Back in 2016, a company from Ukranie contacted us to assist them setting up operations in Colombia. It’s a big country but not that well known. We are about to finish, I know that you have a company to run! The good thing is that in Colombia, Colombian incomes are on the rise. There are challenges due to inflation and all that but also that Colombians are increasingly international and also premium rums on the market rums that cost more than $200,000 COP per bottle. Is that a challenge for your company? Do you have plans to also compete in that market, not only mass consumption products but also ultra-premium products that cost between $70 USD and $80 USD?
Luis Roberto Rivas: Yes of course. We have premium rums. It is a category that we have grown a lot. Premium rums is one of the categories that has grown the most. We have Carta de Oro, an 8-year-old rum, Gran Reserva Especial, we have a rum that has been a success in Colombia named Ron León Dormido (Sleeping Lion), a special edition, it is a 21 year old rum. Now, we are going to introduce a new edition finished in sherry barrels which will provide a different touch.
Finance Colombia: Are those barrels coming from Spain?
Luis Roberto Rivas: Correct. We brought Pedro Jiménez barrels from Spain. We put the tafias in those barrels and it is going to be introduced to the market next December. 18 months ago, we imported those barrels, 18 months ago the tafias were incorporated.
So, yes, we continue to release premium rums and we are going to continue expanding the category. Our intention is launch other products, other liquors because the business the is increasingly dynamizing and innovation is required.
Finance Colombia: You previously mentioned that when you arrived, you made many changes to modernize the company. How do you balance tradition? Rum is a traditional product with a history in the Americas, South America and the Caribbean and very traditional but how do you balance that tradition with the intention of modernizing the company, the factories, make the processes more and more efficient? How you define when cost cutting: “Here we are not going to touch the rum?” For instance, rum needs aging, a period of time, time is money. How you balance the need for quality and tradition with being able to modernize and be more and more efficient?
Luis Roberto Rivas: Well. Let’s say that there are several phases concerning modernization. Technology wise, we performed a huge change to be consistent, which generated the possibility of implementing an ERP, an information system, in which the entire company is organized by processes. Nowadays, from my tablet, as well as any member of the board, can check the sales to date. Or check plant efficiency. Now, it is crystal clear for us what is the exact cost to produce one bottle.
Absolutely everything is systematized. We use a very good ERP system provided by Microsoft, Dynamics AX. It is very good. We are also moving forward with Microsoft 365, which is the next step technology-wise. The other part, I must mention is the production plant and it was to adapt the entire plant to good manufacturing practices. Fundamentally, when we arrived we did not have a good manufacturing practices certification.
Finance Colombia: Like ISO and such?
Luis Roberto Rivas: Right. That is a certification required by Invima. So, we quickly got certified. Also, we are constantly investing in improving, updating good manufacturing practices. In here, modernization is focused in four key aspects:
- First, complying with Good Manufacturing Practices.
- Second, prioritize improving safe working conditions for plant workers. For instance, manual activities performed by plant operators that imply an expense should be executed by pneumatic machines.
- Third, renew production lines to make lines much faster, efficient, productive, and…
- Fourth, that they have an environmental sustainability component.
So, in the company, we strive to reduce carbon footprint, our water consumption footprint, our participation in the circular economy, recovery of containers and packaging. Our electrical substations were revamped, old oil-powered transformers were replaced by new environmentally friendly ones. Our forklifts are electric. Diesel is no longer used. Water consumption in the manufacturing process has been reduced. We have worked on those topics. In addition, we conducted extensive work on rum innovation.
We have a very modern laboratory in that facility in which we check every single liquid that comes in and out of the plant, both aguardiente and rum. We are able to check all the alcohol that gets here and detect absolutely everything. That is key for quality control.
We enforce technical sheets and quality control and are also demanding when buying from suppliers to guarantee that our raw materials are of excellent quality. So, before buying a tafia alcohol, for example, supplier development is required. Our rum masters need to go there and check their distillation and fermentation processes, check how they execute the process to obtain alcohol from sugar cane. So, we include that in a technical sheet and that raw material needs to comply with that technical sheet. We do enforce that.
There has been a lot of innovation here, blended liquors have improved quite a lot despite the fact that we are the only rum makers that use Colombian white oak. One time only use. Other rum makers use second-hand American oak that comes from Tennessee, Kentucky, Jack Daniels, all of that.
We use Colombian white oak. With our rum masters, we have done a lot of innovation and that has allowed us to obtain cheaper blends and additionally, it has allowed us to improve inventories. In 2015, we had around 70,000 aging barrels. Today, we are on track to close the year with 123,000 aging barrels. That is more than 27 million liters of tafia alcohol stored in the barrels in the warehouse.
Finance Colombia: Colombia produces a lot of sugar cane, it is still required to import tafia (raw alcohol)?
Luis Roberto Rivas: All of it.
Finance Colombia: Really?
Luis Roberto Rivas: Yes. We have to import tafia. Just recently, Colombia is starting to produce tafia alcohol in some Cauca Valley sugarcane mills. Despite being a country with lots of sugarcane mills and sugar those facilities only manufacture of alcohol for biofuels. It is extremely different to manufacture alcohol for gas consumption then to switch over to manufacturing alcohol for human consumption!
Now, we have been working together with some sugarcane mills to develop as a team, with our knowledge and infrastructure, so that they can manufacture tafia alcohol. That is coming up in the next years. All aimed to stop alcohol imports, it does not make any sense. From here we are about two hours from the sugarcane mills!
Finance Colombia: They are on your way when you get to Cali, in Palmira.
Luis Roberto Rivas: The issue is that when the oil price increases all alcohol is directed towards the biogas industry.
Finance Colombia: It is curious how rum manufacturing in Colombia is based out of tafia rather than distilled on site from cane juice or molasses, which is how they manufacture in the Caribbean without using tafia.
Luis Roberto Rivas: We used to manufacture it that way. Virgin molasses was used to produce alcohol for both neutral spirits and tafia. The issue is that none of the liquor industries, all of the factories including the one from Antioquia, which used to manufacture that way, all of them, including us, we had to stop. None of them had a distillery that complied with the environmental regulations for waste disposal.
We did not comply with any of the regulations. There are no treatment plants efficient enough to remove all that contamination load.
Finance Colombia: I see. It is not a cost-based decision but rather an environmental one, right?
Luis Roberto Rivas: Right. It is an environmental issue.
Finance Colombia: Fascinating. I was not aware of that.
Luis Roberto Rivas: Today, this is related to environmental matters. These days, the Regional Autonomous Corporation does not authorize us to distill alcohol. That is because we do not have a treatment facility that complies with the current regulations. Now, given the fact that there is not a distillation process within the plant, the Manizales creek cleanup is picking up which had a major contamination issue. We no longer pollute. In fact, 2 years ago, we were the first company, with access to the Manizales sewage water interceptor to avoid spilling into the creek. That was key.
Finance Colombia: Right. That is very important.
Luis Roberto Rivas: In addition, we also have something very interesting, Loren. This is a company that has 270 hectares (approximately 667 acres) of protected forest. From here you can see the forest, a humid nature preserve. Over there in Palo Alto there are 68 water springs. Out of those 68 water springs, 3 creeks come out. Water from those creeks come into a treatment plant. A water cleaning procedure takes place in that facility producing the water required for manufacturing purposes as well as any other use within the plant. So, when you drink a bottle of Aguardiente Cristal, Ron Viejo de Caldas or Yellow Aguardiente you are drinking spring water. This is the only rum manufacturing company in the world that has that, no one else has it. The rest use tap water. Not us.