Wells Fargo's Weekly Economic and Financial Commentary

Source: Wells Fargo

Sep 10th

U.S.

•  Disappointing data this week reaffirms the notion that economic growth will remain sluggish in 2H12.
•  While the unemployment rate fell from 8.3% to 8.1%, the drop was largely attributed to a decline in the labor force participation rate as nonfarm payrolls increased by just 96,000, far below the consensus expectation.
•  The ISM Manufacturing Index remained below the demarcation line for the third consecutive month, declining to its lowest level since July 2009.
• Construction spending unexpectedly fell 0.9% in July with broad-based declines.
• Nonresidential spending contracted by 0.6% and residential outlays shrunk by 1.6%; contrarily, single family expenditures improved 1.5%
• Next week's key data points:
• Consumer Price Index (Friday) - Consensus forecast: 0.5% higher; the downward trend in consumer price inflation may finally be over.
• Retail Sales (Friday) - Consensus forecast: 0.6% increase; slightly slower than the 0.8% improvement in July.
•  Industrial Production (Friday) - Consensus forecast: 0.1%; a disappointing ISM Manufacturing Index report likely precedes a weaker Industrial Production report than last month (0.6%).

International

•  Mario Draghi, ECB President, seems to have developed a new plan for bond buying that will likely help solve the economic issues in the Eurozone.
•  China continues to watch Europe, its largest export market, closely; the results of the bond buying efforts proposed by the ECB will likely determine any economic action of the Chinese government.
• The effects of the Eurozone crisis on commodity prices and commodity exports is negatively effecting the growth prospects in emerging markets.
•  Strong growth is not expected to resume in the near-term, but improved expectations are on the horizon.

China's Online Alcohol Sales to Reach $2 Billion in 2014

Source: www.wines-info.com

2012-9-11

Well, that's a lot of booze. Chinese consumers are expected to buy 13 billion RMB - a full $2 billion - in wines, beers, and spirits on the country's specialist B2C alcohol e-tailers by 2014. That's the same as the GDP of the west African nation of Guinea-Bissau. The estimated figure for the whole of this year online in China is a relatively small 3.7 billion RMB ($584.4 million), indicating this sector is still young and has a lot of room for growth.

Those figures come from Beijing-based Analysys International, who reckons that there'll be growth of 200 percent from 2011 to the end of this year (see graph below). Afterall, offline channels still account for about 99 percent of booze sales in the nation, so there's a lot left to shift online.

Indeed, if you break down that $2 billion figure for 2014 by the number of adults of legal drinking age, then each person is only spending about $3 per year online for alcoholic beverages.

This alcohol online sales vertical - perhaps when everyone has drunk too much it becomes a horizontal - covers everyone from China's top online store, Tmall, to the Walmart-controlled food e-tailer Yihaodian, to very specialist B2C wines and beers sites like Jiumei and Jiuxian. The fact that those latter two startup sites recently wrapped up some major funding - $15.8 million for Jiumei; $32 million for Jiuxian - shows that well-focused e-commerce sites have a good chance of beating the big boys. There are other smaller contenders too, like the VIP sales site TasteV, and the wine-only Moooton.

In terms of what kind of good stuff folks are buying in China, the research firm reckons that 2012 will see a 60:30:10 split between spirits (including Chinese rice wine), red wine, and other booze, respectively.

Source: www.techinasia.com

Arnault fury at 'vulgar' headline

Source: FT

By Scheherazade Daneshkhu in Paris

Sep 10th

The controversy over Bernard Arnault's application for Belgian citizenship showed no signs of dying down on Monday after the French billionaire said he had filed a legal complaint against a daily newspaper over an offensive headline.

Mr Arnault, head of LVMH, the luxury goods group whose brands include Louis Vuitton, Dior and Moët & Chandon, said in a statement that he had no choice but to lodge the complaint for public insults against him because the headline of the left-leaning Liberation was "extremely vulgar and violent."

Libération posted a full page picture of a smiling Mr Arnault holding a suitcase with the words, loosely translated: "Get lost, you rich jerk!"

The phrase appeared a deliberate echo of one uttered by former president Nicolas Sarkozy - regarded as a friend of Mr Arnault - to a worker who refused to shake his hand. Mr Sarkozy was caught on camera telling the worker: "Get lost, you pathetic jerk."

Mr Arnault repeated on Monday that he would continue to pay his taxes in France. He said at the weekend, when the controversy broke, that his application for Belgian citizenship was not linked to President Francois Hollande's controversial 75 per cent marginal tax rate on incomes over ?1m but related to his personal business interests in Belgium - where he has extensive ties with Albert Frère, the billionaire Belgian industrialist.

Mr Hollande said in a television interview on Sunday night that Mr Arnault: "should have thought hard about what it signifies to ask fro another nationality. We are proud of being French."

The Socialist president has had to defend his flagship tax measure against the centre right opposition and big business which have argued that it will lead to an exodus of talent.

It was the second time in a week that France's richest man has resorted to the justice system, after filing a counter-complaint against Hermès, the Birkin bags and silk scarves group, alleging "slander, blackmail and unfair competition".

This followed immediately the disclosure by Hermès of a legal complaint it had filed with the Paris relating to LVMH's purchase of its shares in 2010. LVMH holds a 22 per cent stake in the family-controlled smaller group, which opposes the shareholding, regarding it as "unfriendly" - something LVMH denies.

Czech: Growing concern over public safety as police investigate bootleg liquor deaths

Source: Radio.cz

Daniela Lazarová

10-09-2012

The Czech Republic is in the grip of a methanol scare after 11 people suffered acute methanol poisoning from bootleg alcohol. As the number of fatalities rises police around the country are trying to trace the source of the contaminated liquor and issuing urgent warnings to the public.

CTK Police are out in force in the Moravian town of Havirov making sure the methadone warning reaches those who need to hear it most -homeless people and those out on the street likely to buy cheap bootleg alcohol. Three of the seven people who bought cheap brandy on tap at a stall in Havirov last week are dead, three others are in a coma on life support, another has gone blind. All suffered acute methanol poisoning which is known to have fatal consequences. The town hall's spokeswoman Ewa Vojnarova says they are dealing with an emergency situation.

"The situation is grave and there is considerable danger to citizens' life and health. The police have closed down five stalls which sold bootleg liquor and are now trying to trace the source of the contaminated batch."

The owner of one of the stalls has been charged with causing grievous bodily harm resulting in death and is in custody awaiting trial but he does not appear to have produced the home-made brandy and it is still not clear how much of it was put on the market or where it may surface. Over the weekend two other cases appeared in the towns of Znojmo and Kyjov, both located in south Moravia at a considerable distance from Havirov. Although one of the men is employed in Havirov and admitted to having consumed cheap brandy bought in the street, the other had no apparent connection to the place. He had consumed alcohol at a local disco and pub the previous night. With the source of the contaminated alcohol unclear the mayors of Kyov, Znojmo and nearby towns are holding crisis meetings with doctors and police to consult preventive measures and an effective information campaign.

Monday morning confirmed the worst fears - an acute case of methanol poisoning was reported in Pribram, central Bohemia. A sixty-five year old man is in critical condition and has gone blind after drinking seven shots of vodka bought at a local store.

Vladimir Steiner from the Czech Association of Spirit Producers and Importers says that while 15 to 20 percent of the liquor consumed in the Czech Republic annually is home made this particular batch is something entirely different.

"In my view this is a criminal offense. The health problems we are seeing could not have been caused by home-made brandy which often contains small traces of methadone that could make people sick but would not be fatal. If you ask me I think that someone producing bootleg alcohol had access to the methadone that is imported to the Czech Republic for industrial use. It comes at half the price of ethanol and I think someone intentionally substituted it looking to make a quick fortune and knowing that by its colour, taste and smell it is indistinguishable from ethanol."

With the methanol threat now nationwide, police are out in force around the country checking out street stalls and small mixed goods stores that sell cheap liquor. The Health Ministry is sending out inspectors restaurants, canteens and eateries around the country. People are repeatedly being warned not to consume unlabelled alcohol or order spirits on tap. Although the shocking reports on the case have now made most people highly cautious about what they consume, the police fear that those who are at real risk of buying cheap bootleg liquor are not likely to be listening.

Sapporo Confirms $2.5bn Investment Plan

Source: KamCity

Sep 10th

Japanese brewer Sapporo has announced plans to invest up to $2.5bn over the next five years, saying the money will be used for expanding capacity and acquisitions. The group also said it will continue to look for ways to grow its presence in the food and soft drinks categories, reducing its dependence on beer.

President Tsutomu Kamijo said the group is sticking by its investment plans despite lowering full-year profit and revenue forecasts in August. Sapporo had cut its operating profit forecast by 20%, citing higher marketing costs, but Kamijo said it "won't have a big impact" on the investment plan.

Kamijo added that he is "watching with interest" for possible acquisitions in the domestic yogurt or milk industries. Last year, the group acquired local food & beverage maker Pokka, and earlier this year, it picked up a 51% stake in US beverage firm Silver Springs Citrus.

Rum producers in small Caribbean countries say they're hurt by US subsidies

Source: Associated Press

September 10

Rum, the sugar-based liquor that has fueled the development of the Caribbean for centuries, has become the focus of an increasingly bitter dispute with the U.S.

Small producers in countries such as Antigua, Guyana and Jamaica complain they are being punched by unfair trade and marketing advantages for global beverage corporations operating in U.S. territories, and say U.S. rum subsidies threaten to drive some beloved top-shelf Caribbean labels out of business, or force them to sell out.

 "The amounts that are being doled out now are staggering," said Frank Ward, chairman of the West Indies Rum & Spirits Producers' Association. "We were able to live with the level of U.S. subsidies as they once were. But the massive increases, we believe, have skewed the market."

It's a high stakes battle because rum, first developed on Caribbean sugar plantations in the 17th century and deeply engrained in local culture and history, is one of the few competitive industries for the tourism-dependent region's tiny, vulnerable economies. The tipple, which can range from colorless to coppery, from almost tasteless to richly layered, generates roughly $500 million in foreign exchange for independent Caribbean countries and more than $250 million in tax revenue.

The subsidies come from money raised through an excise tax on liquor sold in the United States. Under an obscure federal law, almost all of the money generated by rum goes to the treasuries of Puerto Rico and the U.S. Virgin Islands. Those tropical territories in turn hand a share of it to the producers as a subsidy to do business there.

Distillers in other countries say they lived fairly comfortably with the U.S. subsidies for decades, even if they thought the rebates gave advantages to rum giant Bacardi Limited in Puerto Rico and Cruzan Rum, a U.S. Virgin Islands brand now owned by Beam Inc., the U.S. maker of spirits such as Jim Beam and Maker's Mark.

But they are alarmed by recent deals that sharply increased the subsidies for already powerful corporations in the two territories.

In the Virgin Islands, London-based Diageo PLC signed a long-term lease in 2009 to build a rum distillery on St. Croix making the Captain Morgan brand in exchange for a chunk of the excise-tax revenue estimated at $2.7 billion over 30 years. It will start full production next fiscal year. Diageo also gets government marketing support and generous subsidies for molasses, the syrupy byproduct of sugar refining that is a key ingredient in most rum.

Puerto Rico, in response, has increased the amount it spends to promote its rum industry, from 10 percent to 25 percent of the excise tax money it gets back. It has also awarded Bacardi a $95 million grant to renovate its production plant in exchange for maintaining a minimum level of production for the next 20 years. That translates into more than $230 million in yearly revenue from excise taxes

The moves have prompted some competing Caribbean distillers to urge their governments to complain to the World Trade Organization, fearing that the U.S. subsidies may undermine age-old rum operations in the Caribbean, the global center of production, and motivate other multinational distillers to relocate to U.S. territories.

"Our Caribbean distilleries need to export rum in order to survive. But bigger subsidies in the U.S. islands means we don't get a level playing field for our exports, and it's going to affect both small and large producers here," said Anthony Bento, managing director of the 80-year-old Antigua company that makes English Harbour Rum in copper stills and ages it in oak barrels.

Clifton Shillingford of Shillingford Estates Ltd, a small Dominica distiller that makes its Macourcherie rums from local sugar cane juice instead of molasses, said the subsidies for big global brands in the U.S. islands will "destroy" his rum business.

Diageo argues the complaints of smaller producers are overblown. Spokesperson Brooke Lawer says the subsidies the British company receives are similar to incentives from U.S. states or other countries to attract industry and do not create a competitive disadvantage.

Quoting figures from the Geneva-based International Trade Center, Diageo says Caribbean Community rum exports to the U.S. increased by 18 percent in the first half of 2012 over the same period last year.

New Zealand: Alcohol reformers keep pushing

Source: NZ Herald

By Isaac Davison

Saturday Sep 1, 2012

MPs and lobby groups say once-in-a-generation alcohol reforms must be salvaged after one of the core measures was defeated in Parliament.

Justice Minister Judith Collins said yesterday that Parliament's decision not to raise the alcohol purchase age in a conscience vote had denied the Government an effective way of curbing alcohol-related harm.

But she felt there were many more effective tools in the bill.

National MP Tim Macindoe, who tabled the amendment to raise the purchase age to 20, said it was now crucial "to get the rest of the bill right".

Asked whether the legislation needed stronger amendments to make up for the drinking age being kept at 18, he said he had confidence in the Justice Minister's proposals.

The minister has proposed banning alcohol advertising that targets young people and requiring parents to give express consent - verbal, written, or by text message - for the private supply of alcohol to people under 18.

Health experts, including the Prime Minister's science adviser, Sir Peter Gluckman, had strongly supported a purchase age of 20.

University of Otago head of preventive and social medicine Jennie Connor said the bill had already needed more robust measures to curb alcoholism - with the age option defeated, it was absolutely essential.

She did not believe the bill in its present form would limit alcohol-related damage.

MPs will now consider the remainder of the bill, which includes banning late-night alcohol sales and limiting where alcohol can be displayed in stores.

They will also consider 18 amendments put up by MPs who have proposed a minimum price for alcohol, warning labels for liquor bottles and stricter rules on alcohol sponsorship and advertising.

The purchase age was the only amendment on which all parties had a conscience vote.

The National Party plans to vote as a party for the remaining proposals, while Labour will allow a personal vote for all amendments.

Mrs Collins has confirmed that National would vote against all 18 amendments proposed by other parties.

This meant National needed two more votes to defeat the other parties' amendments, and the key votes would fall to coalition partners Act and United Future.

Both Act leader John Banks and United Future leader Peter Dunne said they would not support any of the amendments.

Labour spokeswoman Lianne Dalziel said the fact that National was "whipping" its vote meant the bill was no longer in the hands of politicians.

She urged constituents to lobby their MPs for stronger measures.

Ms Dalziel felt the bill was out of tune with what the public wanted and was "disrespectful" to submitters who called for changes to alcohol pricing, sponsorship and availability.

A Herald-DigiPoll survey showed 80 per cent of New Zealanders supported a higher purchase age. But the DigiPoll also showed just 40.6 per cent of the public supported a minimum price on alcohol.

Hospitality Association chief Bruce Robertson welcomed the vote on the purchase age but said the industry was awaiting the rest of the reforms with some trepidation.

He was most concerned about a law change giving communities the power to set their own local alcohol policies, which he felt would create new, complex systems which would inevitably increase licensing fees.

Other proposals

MPs want 18 amendments to the Alcohol Reform Bill. Here are some, and what the Ministry of Justice thinks.

Set a minimum price for alcohol

MoJ: Too early for a minimum price as officials are investigating whether it works.

Ban alcohol advertising and sponsorship

MoJ: Strong public support but would penalise many clubs and organisations.

Ban alcohol advertising on radio and TV

MoJ: Strong public support but little evidence it works.

Remove industry exemption from providing nutritional and warning labels

MoJ: Needs approval from Australia, which shares food safety standards. Should not be part of this bill.