Agave shortage: the hidden costs

Agave shortage doesn't just mean higher priced tequila. DI's guest writer Dale Sklar, tells us how the black market for agave is back and how the 'Coyotes' are once again prospering. 

About every 10-12 years, there seems to be an agave shortage in Mexico. Last time it started unexpectedly, almost out of the blue with three factors blamed on the shortage, a snow storm (almost unknown weather in Jalisco) which ravaged some agave plantations, rising world demand and limited supply, and a disease known locally as ‘Cida del agave’, which is usually caused by a fungal infection, often started by an insect bite which permits fungal entry afterwards.

When the Agave shortage last happened, about 12 years ago, prices shot up over the period of 18 months from around 0.03 pesos a kilo to over 17 pesos a kilo (i.e. still more than double present prices), and plantations were even hiring armed guards to watch over the agave to prevent midnight thefts from the fields. Many brands disappeared from the shelves, as producers couldn’t find agave at a commercial price, and a new player came about in the Tequila business. Known locally as ‘coyotes’, these were guys who would ‘find’ agave (no one asked too many questions!), and many made so much money in a short time, that they could be seen riding into Arandas town on new saddles and belts encrusted in solid silver. The Coyotes are coming back…

The 12 year cycle usually starts with the price going down in the plantations - only 2  years ago, it was said the low price of agave makes it cheaper to leave it rot in the plantations, than pay a man to cut it and bring it into the distillery. Then the talk changed, people saying that the agave shortage was a trick by the large producersto push up prices. Some said that the big distillers are all sitting on huge inventory of liquid and there’s plenty in USA in bulk.

Then all of a sudden the prices really did start increasing. As a measure of the increases, two years ago, a kilo of cropped agave sold for 25 centavos (0.25 pesos) a kilo, then a year later it had risen to 40 centavos a kilo, and another year later, the same product is selling at 6.5 pesos a kilo! (Still far below the 17 pesos of 12 years ago -so far!)

To make it even worse, despite the best efforts of the CRT (the official body regulating the Tequila industry and practices), when the price of agave increases massively, it is inevitable that agave from areas outside of the permitted zones of the 5 nominated Tequila states, will find their way north from Yucatan and Oaxaca into Jalisco, and (illegally) get made into Tequila. Usually this out-of-zone agave is a different sub-species, such as Agave Espadin, and Agave Henequen.

As a result of this, the price of agave has hugely increased in Oaxaca where most of the Mezcal comes from. Of course this then has a knock-on effect and so the price of Mezcal is also increasing dramatically.

I advise my friends that given the banks offer around 1.7% interest rates on deposits, an investment in 100% agave Tequila (and also Scotch whisky) makes a lot of sense.  We know that prices are rocketing, and with a world-wide interest in Tequila, this becomes a very valid investment for short term profits. 

The CRT is trying to control agave production by introducing strict rules about what agave may be planted and keeping records. However when the prices rocket, and producers are running short of raw material to ferment and distill, the finer points of official and unofficial can become, blurred.

In fact, Tequila is massively underpriced.  Unlike Cider, Beer, Wine, Whisky, Cognac etc. the source crops of which are annually harvested, it takes around eight years for the agave to reach maturity. Once it is cut the grower has to wait another eight years for a paying crop. When ready, the grower currently receives around 6 pesos a kilo for the cropped ‘Pina’, and that is after cutting off the long spikey leaves and root stump. A 50 kilo Pina might therefore net approximately 300 pesos (approx. $23 US) which after planting, tending and cropping over an eight year term, is not exactly rich pickings.

It would be an interesting project for an economics student to work out what would be a commercial cost for producing Agave in say the hot dry parts of Spain, and compare this with current prices in Mexico. I would be astonished, if it were not at least treble the price.

Mexico has worked out a very Mexican solution to this shortage, by having a category of Tequila known colloquially as ‘mixto’ (mixed) or more accurately as 51/49 because is may be produced using a minimum of 51% real agave, and maximum of 49% sugars from almost any other source, except other forms of agave. This has always struck me as really weird. Can you imagine the Scotch Whisky Association allowing a category of Scotch called ‘Mixed Scotch’ which may be minimum 51% made from genuine Scottish cereals and up to 49% made up of sugar from sugar cane, beet, any other source, perhaps even agave? Sounds ridiculous doesn’t it.

Carlos Camarena, from the La Alteña distillery, says that prices going even higher than where they were 12 years ago. He says the agave thefts have now started again, and he has to hire armed guards to protect his plantations.

The tequila industry is once again going through one of its swings from feast-to-famine.

Dale Sklar is MD of Wine and Spirit International. 

http://www.wineandspirit.com