Margaritaville May Get More Expensive

Margarita lovers are about to get zinged with higher prices as tequila producers grapple with a shortage of agave, the cactus-like plant from which the potent Mexican liquor is distilled.

The shortage has led to a tenfold leap in the cost of agave since last January, bringing the price from $43 a ton to about $430. The only winners here are the thousands of agave growers, many of whom have long suffered from depressed prices.

Tequila makers are passing along some of their higher costs, so tequila drinkers everywhere can expect to pay higher prices in coming months. If the drink’s buyers balk, the Mexican economy could feel the pain. Tequila makes up most of Mexico’s liquor exports, which amounted to $296.1 million and accounted for 0.3% of the country’s total overseas sales in 1998.

The agave shortage may linger for some time. The plants take about seven years to mature and render only one harvest, so farmers often fail to match demand. This time, the shortage is more acute than normal. A freeze two years ago damaged thousands of plants, and two crop diseases could destroy up to 15% of the agave now maturing in the fields.

Growing worldwide demand for tequila has added to the shortages. Industry officials say tequila consumption has doubled in the last five years and they expect it to grow 18% to 200,000 liters this year, making their product the world’s fastest-growing liquor.

Since 1994, the number of tequila producers in Mexico has almost tripled, to 72 from 27. International liquor companies have rushed to buy into the tequila boom.

This year, Brown-Forman Corp., the U.S. maker of Jack Daniels, bought a one-third stake in Tequila Orendain de Jalisco, and Canadian beverage giant Seagram Co. bought into Tequila Don Julio. Britain’s Allied Domecq controls Tequila Sauza, the No. 2 tequila producer, and London-based Diageo, the food and spirits conglomerate, has a stake in Tequila Cuervo, Mexico’s largest and oldest producer.

Even St. Louis-based Anheuser-Busch Cos., the world’s largest brewer, has taken part in the craze, mixing tequila flavoring with beer in its new Tequiza product.

The surge in tequilas made from 100% blue agave, higher-quality spirits that connoisseurs have learned to sip and savor, has added to the shortage.

In 1998, 34% of tequila produced was made with 100% agave, up from 15% in 1995, as consumers become more educated about tequilas.

The problem is that one liter of tequila made from 100% agave juice takes 6.8 kilograms of agave, while the blended tequila uses only 2.8 kilograms. That’s because as much as 49% of the alcohol in blended tequilas is derived from sugars besides those extracted from agave.

Industry leaders are downplaying the agave shortage. Executives at the Tequila Regulatory Council, which guarantees the authenticity of the drink, say they won’t declare an official shortage until they finish a detailed agave survey in March. Using satellite technology and field workers who count each plant twice, the council will determine the number of plants, the age and how many are infected with disease.

Official or not, the shortage is a fact of life for tequila makers. At Tequila Herradura, situated on a vast hacienda at the end of a tree-lined, cobblestone street in the town of Amatitan, the Romo family has been making top-rated tequila since 1870. Herradura is struggling to get enough agave even though it owns large agave fields and is one of the four biggest producers in Mexico.

Herradura needs to steam-cook and shred as much as 490 metric tons of agave a day to produce its tequila. During the last couple of months the company has been able to scrounge up as little as 360 tons, said Sebastian Melendrez, assistant director of production. “We’re lowering our rhythm of production a bit,” he said.

In a green valley tucked between rugged mountains of the Highlands in Jalisco, Miguel Hernandez slices off the bluish-green spikes that jut up from the heart of the agave with a razor-sharp, flat-bladed hoe just as he has for almost five decades.

Hernandez is working in one of the estimated 160,000 acres in Mexico sown with blue agave, which is grown in 124 municipalities in Jalisco and 54 municipalities in four other Mexican states.

Agave is the only plant that can be used to make tequila, one of a handful of alcoholic beverages, such as champagne and Cognac, produced exclusively from a designated region. That means tequila companies have no substitute for blue agave.

Prices are climbing every week, making it more profitable for some small tequila makers to sell agave from their own fields instead of using it to make tequila, said Francisco Lozano, who heads up agave production and procurement for Tequila Cazadores.

As the tequila producers begin to pass along their higher agave costs, prices for cheaper brands of tequila, made from 51% agave nectar and the rest from other sugars, have shot up more than 50%. Those are the tequilas that usually end up in mixed drinks, such as margaritas. And that’s where the price increases could be felt first.

Although prices have been steady on most premium brands, wholesalers said an increase on those could come in January.

An increase in tequila prices is overdue, said Javier Arroyo, Tequila Council president. Tequila has long lagged on price behind other popular liquors, such as scotch and gin.

“People can be sure that there’s going to be enough tequila for their margaritas but, of course, with more competitive prices in relation with other liquors,” Arroyo said.

The bottom line for margarita lovers: expect to pay more for your favorite drink.