Tequila prices skyrocket as producers face shortage of its key ingredient
MEXICO CITY (AP) -- After a five-year bash that saw global tequila
consumption nearly double, liquor producers are waking up with pounding heads
-- unable to keep up with tequila demand even as prices soar.
Squeezed by a severe shortage of the blue agave used to make the potent
prices are skyrocketing for the cactus-like plant as well as for your favorite
tequila, if you can still find it at the liquor store.
Relief could be years away.
"Nobody ever imagined demand would reach these levels," said Ramon Gonzalez,
head of Mexico's Tequila Regulatory Council, which oversees the industry.
Tequila's star began to rise in the early 1990s, with Mexican production
doubling to top 50 million gallons in the five years through 1999. About half was
exported -- 80 percent of that to the United States, where tequila is now an
established party drink.
Driving the shortage even more than the boom in tequila consumption is
re-education of the global palate.
All tequila must be made with at least 51 percent blue agave grown in specified
areas of Mexico. Used to be, almost all tequila merely met the minimum, and was
completed with cheaper distilled sugar cane. Brands like Sauza and Jose Cuervo
posted strong sales with such brews, which often are used to make margaritas.
But over the last half decade, many consumers have demanded the finer and
more expensive 100 percent agave "sipping" tequilas. Between 1995 and 1999,
overall production of pure agave tequilas rose 300 percent, while exports shot up
Add in agave plants destroyed by a 1997 fungus plague, and you explain
supply crisis and its price rises.
The number of blue agave plants in Mexico dropped by nearly half to 107
this year from 1997, according to the National Tequila Chamber. That pushed
down tequila production growth to 9 percent from an average 16.5 percent the
last five years.
"Before we made spoken arrangements to buy from the agave growers, but
even a written contract can mean nothing, as there is always someone willing to
offer more money," said Jaime Orendain, who owns a pure tequila distillery
called Azteca de Jalisco.
Orendain said he now pays up to $1,050 for a ton of agave. That's nearly
times more than he paid last August.
The consumer is feeling the pinch.
Orendain estimates the agave shortage already has pushed up tequila prices
about a third. He confesses to a similar price hike in his own Arette brand -- to
around $18 a liter in Mexico and $40 in the United States.
The shortage of agave is far from obvious when you look out over the misty
blue plantations covering Mexico's tequila-producing region, centered in the
eastern state of Jalisco.
But agave needs seven to 10 years to mature, and the spiky tufts you see
young to produce the sugary juice that is extracted from the plant's huge
pineapple-shaped core, fermented and then distilled twice to become tequila.
"It didn't occur to anyone to invest in planting agave seven years ago,
was overproduction and prices were rock-bottom," Gonzalez said.
Last year, Orendain's mid-sized distillery produced 1.3 million gallons
percent agave tequila for sale in Mexico, the United States, Central America and
Hong Kong. This year, he expects the agave crunch to force him to cut
production by 20 percent.
He said his company isn't at risk of going under, but that many small-scale
producers are in trouble because they can't pay the raw material prices in this
"The boom came without anybody thinking it through properly, and now what?
We are all left crying," said Jorge Ruiz, owner of the small La Escondida
distillery founded by his grandfather in 1920.
The disgruntled tequila veteran has his survival strategy. He will do everything
possible to satisfy one regular European order, and sell anything left to the major
tequila players who are busily buying from smaller producers to keep open their
thirsty new markets.
Most of the top tequila companies are linked to major beverage multinationals.
Jose Cuervo, producer of the best known tequila outside Mexico, is 45 percent
owned by United Distillers of Britain, which also sells Johnnie Walker whiskey
and Smirnoff vodka. Another British concern, Allied Domecq, owns the
well-known Sauza brands, while the U.S. firm Brown-Forman owns 33 percent
of Orendain Tequila, another top-selling name. Don Julio, considered one of
Mexico's finest tequilas, is part-owned by Seagram.
Companies of this size are able to ride the crisis in part by increasing
of their mixed-sugar tequilas. Even Herradura, a major brand of pure tequila,
intends to introduce a mixed variety.
"The liters must be kept up, so the categories are being reshuffled. The
is not going to die, but it is going to change," said Gonzalez, the Regulatory
He said the future of tequila is safe as long as agave growers and liquor
producers plan ahead to break the oversupply-undersupply cycle.
It would be a major mistake, to even temporarily relax the rule that tequilas
contain at least 51 percent agave, he added.
Behind his desk, Gonzalez keeps a collection of foul-smelling fake tequilas
very little, or zero, agave content that he vows will never legally bear the name of
tequila. He shows off his favorite, a bottle adorned with a vulture in dark glasses
and a Mexican hat.
"It rots your gut and gives you the message, 'Let's go crazy,"' he said.