HARD UP IN JALISCO SHORTAGE OF BLUE AGAVE PLANTS TEQUILA'S RAW MATERIAL, DRIVES UP PRICES
Chicago Tribune; Chicago, Ill.; Mar 22, 2000; Lew Bryson Special to the Tribune;

When you sip your next margarita, consider the poor agave farmer. Not only does he have the typical farmer's worries of rainfall, blight, frost and pests, he has an economic forecasting burden that would faze Alan Greenspan.

Blue agave, the crucial element in the manufacture of tequila, requires eight to 12 years to grow to a proper size for cutting. (On its way to tequila, the hearts of the plant are roasted, and their sugary juices squeezed out and fermented before distilling.) A farmer must guess how much tequila drinkers around the world will want 10 years down the road.

Fumbling this guesswork in the past has never meant more than a few hard years for a few farmers. But a lot of farmers and distillers guessed wrong in the midst of an agave glut eight years ago, and the tequila industry is in a crisis that will get much worse before it gets better. Enjoy that margarita while you can still afford it.

Though retail prices for anejo and reposado tequilas, which are aged, haven't risen too steeply yet, shelf prices on cheaper brands have doubled in some markets. Upscale brands are holding the line for now, mainly because they work on larger inventory and slower turnaround: The tequila in the pipeline is still made from reasonably priced agave.

Robert Denton, who imports Chinaco and El Tesoro tequilas, explains that the long growing time of agave naturally leads to cyclical crops.

"When there is plenty of agave and the price for mature plants is quite low, (the growers) don't replant because it looks like a losing proposition," Denton said. "They plant other things: cantaloupes, onions, squash. So what happens when that maturation cycle goes full course? Obviously, they are short of plants."

The growers in the Mexican state of Jalisco, the center of agave production, now find themselves in a booming Margaritaville market with a measly shot-and-a-beer harvest. Agave prices are up more than 300 percent over mid-1999 levels and climbing, but there's very little agave to be bought.

"We're victims of our own success," said Steve Goldstein, vice president of public relations for UDV/North America, the U.S. importer for Cuervo tequila. "The real cause is the exploding popularity of tequila. No one was able to realistically plan for that."

According to Chris Morris, who manages the Don Eduardo brand for Brown-Forman, more than 6 million cases of tequila were imported into the U.S. in 1998, the last year for which figures are available. In 1988, that figure was 3,405,222.

There are several factors in the agave shortage. An unusually cold winter in 1996 froze a lot of the younger plants, but it's too soon for this to be affecting the 2000 mature agave market. There is also a fungus, Fusarium oxisporum, that attacks the roots of the plants. Estimates for plants affected range between one-tenth and one- quarter of the total crop. But everyone agrees that the root of the shortage is a growth in tequila demand hitting a slump in harvestable blue agave.

Desperate times breed desperate measures. By regulation, tequila can only be made with blue agave grown in the state of Jalisco and in small enclaves in four other states. Mexico's other national spirit, mezcal, is made from espadin agave grown in Oaxaca state. These agaves are not legally acceptable for making tequila, but trucks ran day and night between Oaxaca and Jalisco recently, Denton said, and the espadin fields were stripped.

Tequila distillers "have already cleaned out the espadin agave fields in Oaxaca," Denton said, "and the mezcal industry is really in trouble. The government put a stop to shipping agave (from Oaxaca) to Jalisco . . . after the fields had all been cleared."

"Twenty tequila distilleries, out of about 70, have closed because they can't get agave," Denton said. He had just returned from evaluating the situation in Jalisco and Oaxaca. "More will close soon."

Distillers of the cheaper mixto tequila, which only needs to be 51 percent agave but has a much bigger market volume than 100 percent agave tequila, are scrambling.

"They're using 5-year-old plants now, and you need six of those to equal one mature plant," Denton said. "They're eating their young."

He painted a bleak picture for the next 10 years. "In 1999 there were 64 million agave plants in the ground," he said. "Roughly 15 percent of them come to maturity each year through 2004. But in 2005 only 0.05 percent of that 64 million will come to maturity, and it doesn't get better until 2009."

"This is going to be horrific. The (minimum of 51 percent) agave content may start dropping with the blessings of the government. They are going to be realistic enough to realize that, if they don't, they might lose the industry."

Ian Chadwick runs an amateur Web site on tequila at www.georgian.net/rally/tequila and has been interviewed on the agave shortage by National Public Radio. He takes a long view on the shortage.

"It's not the first time it has happened," he said. "There was a big demand for tequila during World War II, then the demand went way down and there was an agave glut. There was a big surge during Prohibition, another around the 1968 Mexico City Olympics, both followed by an agave glut."

Denton points out that any crisis is always a time for opportunity. "There are those who sit and cry, and there are those who go out and use it," he said. "Distilleries are being bought for the future. Those distillers who have their own fields and have planted an increasing number (of agaves) every year will be able to increase their market share. El Tesoro has been planting 15 to 18 percent more every year. It was expensive, but we're in good shape now."

Cuervo's Goldstein is similarly bullish about his firm, whose market dominance can help weather a lot of trouble. "Cuervo owns the majority of their agave supply, and the rest is under contract from independent growers," he said.

Morris, of Brown-Forman, is looking on the other side of the gap. "Eventually we'll catch back up," he said. "It's hard to say if the demand still will be there, but if history is any guide, this will probably just whet the American consumers' appetites. When tequila returns in decent quantity, it should rebound quickly. Tex-Mex and Mexican theme restaurants are booming; margaritas are more popular. But the days of $1.99 special margaritas are over for a while."

Among the most pragmatic prophets is Fernando Guzman, the "tequila sommelier" at the Adobo Grill on North Wells Street, which offers more than 70 tequilas. He expects a price increase of 30 percent to 50 percent during the last half of the year.

"Sure, by mid-year the price of agave will have risen 300 percent," Guzman said. "But tequila won't go up that much, because agave is not the only cost involved. Labor didn't go up, packaging didn't go up." In the meantime, Guzman intends to keep doing his job, walking about the restaurant, recommending tequilas to diners to accompany their meals. After a few sips of the right reposado, things don't look so bleak.