Will it be caipirinhas all round for Brazils cachaca producers?

Will it be caipirinhas all round for Brazil's cachaca producers?

Almost a year ago, the Brazilian and US authorities lined up a deal that would see the term 'cachaca' refer to the white spirit that originates from Brazil. The ruling is set to come into effect on 11 April. So, does this mean a new dawn for cachaca? Chris Mercer considers the evidence.

Cachaca's new status as a unique Brazilian spirit in the US is integral to producers thirsting for international success. And, while US bureaucrats have not guaranteed that success, nor fomented a revolution, they have at least laid down foundations for both. 

From 11 April, and for the first time, cachaca will be recognised as a unique Brazilian product in the world's largest spirits market by value. 

It's a favour conferred mostly out of self-interest. After more than a decade of lobbying by Brazilian authorities, it was Brazil's status as an emerging market that finally dragged US officials to the trade negotiating table. Bourbon and Tennessee whiskey - the latter a thinly cloaked code for Jack Daniel's - will get reciprocal recognition in Brazil. 

For cachaca producers, the road to success in the US still looks long and winding. 

Most spirits writers have at some stage been intoxicated by fanciful hype doing the rounds in some trendy urban hangout, at least for a brief time. The intermittent declaration of cachaca's 'arrival' in the US is a classic case.

The sugarcane-based spirit only sells just over 100,000 nine-litre cases in the country. While it is viewed with increasing interest by the US Distilled Spirits Council, it is not yet tracked as an independent category.

There is, however, a strong basis for believing that greater recognition of cachaca puts the spirit on a stronger footing for growth. 

Leblon Cachaca's co-founder & president, Steve Luttman, tells just-drinks: "Before the ruling, cachaça was being lumped into the rum segment as 'just another rum,' which limits the product's uniqueness in the eyes of the consumer.   

"From a trade standpoint, the ruling will result in a 'cachaça' section being carved out in many retail stores, which is already starting to happen." Technically, cachaca will remain a part of the rum sector in the eyes of US officials, although rum will no longer have to be stated on labels: a simple 'cachaca' will do.

Stronger visibility on the shelf will be accompanied by tighter labelling rules. The US Tax & Trade Bureau has agreed to adopt Brazil's own legal definition of cachaca, on the proviso that the abv is at least 40%, as is required for all 'rum' products in the US.

The new rules for cachaca also have similarities with the European Union's system of geographic indications, such as Champagne and Cognac, and which have been shown to add value by conveying various forms of quality to consumers.    

A recent study published by the European Commission found that spirits, wine and food carrying a GI can sell for an average 2.23 times the value of their non-GI counterparts.

Attempts to put a value on GI status are in the early stages. But, the EU-focused study builds on earlier research published by the global intellectual property body, WIPO, which acknowledged the added value of GI status for a growing number of consumers seeking products from a particular place or with a particular culture. 

In this context, Brazil's rising prestige looks set to play well for cachaca in the US. "Consumers will be consuming 'Brazil' when they drink cachaça, and Brazil's potential for growth is enormous," says Luttman. He expects a particular lift from exposure generating by Brazil hosting the 2014 FIFA World Cup and 2016 Olympic Games.  

After all, who wouldn't want to buy into the land of beautiful beaches, people and carnivals? Last year, global branding agency FutureBrand named Brazil as one of the top 15 up-and-coming 'country brands'.

In the US, Luttman sees an emerging trend for Brazilian steakhouses mirroring the rise of Mexican food outlets in the 1980s and 1990s. These could help cachaca in the same way that Mexican food has arguably helped the profile of Tequila.

"I believe it is reasonable to expect the category to grow to 1m nine-litre cases in ten years in the US," Luttman says, adding that Leblon is seeing strong double-digit volume growth year-on-year. 

However, he also recognises that the US rule change can only provide the conditions for growth. "Right now, many Brazilian cachaça producers expect that the new ruling by the TTB will magically grow the cachaça category," he says.

It will have an impact, he argues, but adds: "To realise the potential, I believe the key for distillers is to create high quality products and presentations, and to support them with on-the-ground marketing."   

Too many bartenders and consumers still see cachaca as a cheap spirit liable to leave them sore behind the eyes the following morning, he says. "Much of this perception is deserved, given the poor quality of the industrial cachaças made at the various ethanol distilleries throughout Brazil."

Times are changing, however. Mainstream cachaca is in decline in Brazil, according to several analysts, forcing those who wish to stay in the category to seek opportunities via both premiumisation and exports. The cachaca-based Caipirinha cocktail may be losing traction to vodka-based variants on the domestic front, but it could still be a strong vehicle in international markets.  

Several big players are now involved in Cachaca, which also has the potential to make a difference. Bacardi has been a strategic partner in Leblon since 2007, holding an undisclosed stake. More recently, Diageo and Gruppo Campari have swooped on Ypioca and Sagatiba respectively. 

On the other hand, the Diageo and Campari deals have so far reflected a desire to increase distribution in emerging markets rather than make a serious play on cachaca elsewhere. A spokesperson for Diageo confirmed to just-drinks that there are no current plans to launch Ypioca in the US.

There remains, then, a lot of uncertainty. Can Brazilian cachaca collect enough spirits drinkers, including new consumers and those from vodka, white rum and Tequila, to achieve its much-vaunted potential in the US, and in other foreign markets?

If the destination remains unclear, at least a legal definition has provided producers with a path to walk on.