Agave farmers ‘pushed into a corner’

With an unavoidable reliance on an agricultural product subject to price rigging, disease, glut and shortage, what does the future hold for the Tequila category?

Some Tequila producers believe the agave shortage may have been “designed” by farmers

*This article was first published in the October 2015 issue of The Spirits Business magazine

It was late 2000, or maybe early 2001 – I don’t remember precisely when. But the first time I wrote about Tequila, all the talk was about the agave shortage, and its impact on supplies and pricing for the huge domestic market and for the booming US.

Fast-forward 15 years (or maybe it’s 14) and it’s Tequila’s remake of Groundhog Day. For various reasons – competing alternative uses of agave (agave syrup, inulin), the typical glut-shortage-glut cycle of any agricultural product – supplies are again running short. “We definitely keep a pulse on the market prices; however, we don’t focus too much on the issue,” says Gary Eisenberger, president and co-founder of ultra-premium Karma Tequila. “Agave prices were pushing up and have just recently dropped.

“It’s hard to judge if the market has an actual agave shortage as much as a designed shortage to increase agave prices by the farmers. I believe the farmers have been pushed into a corner over the last five years and need to earn a higher profit, which we’re all for.”

Producers have also learned – and often the hard way – to hedge against precisely this kind of situation. More have planted their own agave fields, giving them greater control over production and, according to Casa Centinela business executive Erica Magaña, many produced a lot of Tequila when prices were low, leaving them less exposed to rising costs now.

That said, there are clear signs of a real impact on the ground. Magaña reckons some farmers are illegally buying in agave from other, non-DO regions – rumours also relayed by Dale Sklar, MD of Wine & Spirit International, and owner of Bambarria and co-owner of Villa Lobos.

Price rigging

Sklar recalls a time just a few years ago when agaveros found it cheaper to leave unwanted agave to rot in the fields, because they were only getting 3-4 centavos a kilo – versus recent pricing of MXP7/kg (£0.30) or so. Some, he reports, have employed armed guards to stop lorries turning up at night and making off with US$100,000 (£66,000) of precious agave.

“Now temper that with often-heard [in Mexico] allegations of price rigging among some of the larger brands with huge stocks of distilled spirit, and the well-known allegations of agave from Oaxaca/Yucatan etc. travelling north,” he says. There have even been suggestions, Sklar adds, of agave juice being shipped in from Nicaragua.

Those whose livelihoods don’t depend on the maturation cycle of an obscure, spiky-leaved succulent might step back and take a more philosophical view of the situation. Production peaks and troughs are merely the flipside of what makes blue Weber agave – and, by extension, Tequila – special. It’s a farmed product, susceptible to its environment (terroir, if you must) and it is able to express that environment in its end product.

Introduce the human factor and you have something that combines the raw material diversity of grapes/wine with the multifarious production options of single malt whisky.

A growing number of Tequila distilleries are planting their own agave fields to have greater production control

Terroir taste

“There are so many variations on the final taste of the Tequila,” says Eisenberger. “Are the agaves from the Highlands (7,000ft-plus elevation) or Lowlands (4,000ft-plus elevation)? Highland agave grows larger and sweeter, lowland agave smaller and earthier. Brick ovens or autoclave ovens to cook the agave? Tahona or rolling mill to remove the sugars from the cooked agave? Fermentation: natural yeast with or without chemical accelerators [that speed up the sugar-to-alcohol conversion]? City water versus well water? Double- or triple-distilled? The list goes on.”

At a time when we’re told craft spirits are the defining trend of the age, this back-story is a potentially appealing one – especially to Tequila’s traditional audience in the United States and Mexico.

“People are becoming more and more interested in how spirits are made, and by whom – and that’s a very good thing,” says Dominic Alcocer, brand director, Tequilas, at Pernod Ricard. “It’s had a powerfully positive impact on both the Avion and Olmeca Altos brands.”

Avion, he continues, is “crafted inefficiently”, using a narrower cut of the distillate and extended filtration, while Altos (which partially uses the tahona process) was created by UK bartenders Dre Masso and the late Henry Besant as a cocktail-friendly, good-value, pure agave Tequila.

And there are early signs that the 100% agave trend is spreading beyond North America. “We do see this appreciation for expertly crafted spirits, especially Tequila, around the globe,” says Alcocer, name-checking South Africa, the UK, Australia and Turkey.

“The US has reached a level of knowledge and education on the category,” adds John Tichenor, global brand director at Brown-Forman-owned Casa Herradura. “They are learning to drink Tequila in new and interesting ways.

“In ROW markets, the super-premium Tequila segment is small; however, it is growing at +25%. In these smaller markets, it will take longer, depending on the market’s level of maturity and education in the Tequila category.”

Contradictory trends

As the category evolves, markets sometimes offer apparently contradictory trends. Dr Tina Ingwersen-Matthiesen, part of the management board of Sierra Tequila owner Borco, reports that Tequila sales in the German off-trade fell by nearly 7% between 2011 and 2014 (Nielsen figures), with on-trade sales also down.

But super-premium Tequilas have performed relatively well over the same timescale, and Dr Ingwersen-Matthiesen reports “growing interest” in the company’s 100% agave Sierra Antiguo as a pouring Tequila in high-end bars and restaurants – with sales up 70% in three years, and rising 50% in early 2015. “Development in our other key markets is not dissimilar,” she adds. “One hundred percent agave is a more-or-less global trend that is on the agenda in almost every conversation we have with existing or global partners.

“Apart from the US, where 100% de agave is a must-have, and the Asian markets, where the subject is becoming more and more relevant, we are also discussing 100% de agave with lots of central and eastern European markets.” Far from having to push these products into the markets, the markets themselves are now demanding them.

However, this positive news comes with a strong caveat: volumes remain small, growth is happening off of a small base, and premium-and-above Tequila remains just a promising niche everywhere apart from North America.

“We have to remember that the Tequila category in international markets outside the US is still in its infant stage,” says Anja Weise-O’Connor, senior marketing manager at Jose Cuervo International. “It represents less than 1% of the spirits market, and there is a strong need for education.

Tequila has long-been touted as having the potential to rival esteemed spirits categories such as single malt whisky and Cognac

Mixto vs. 100% agave

“First, it is important to distinguish between regular [mixto] Tequila and 100% agave Tequila. It is analogous to the whisky category – blended vs single malt, for example. Both can be of very high quality.

“The choice is mostly made from personal preference. As the Tequila category grows, there will undoubtedly be room for good-quality, regular Tequilas, as well as good-quality 100% agave Tequilas.”

The mixto vs 100% agave debate is a contentious one (see box on previous page), and the blended vs single malt whisky analogy is apt. There’s a ready consensus among most Scotch whisky producers that they’ve spent years prioritising single malts over blends in more mature markets, leading consumers to see the former as inherently superior to the latter. Now, as malt stocks run short, they’re trying to backtrack and reinvigorate blends.

This brings us full-circle with an ironic and somewhat paradoxical development. If the agave shortage continues and prices remain high, Tequila brand owners may find themselves trying to promote the charms of mixto to an informed consumer base that has been encouraged to see it as an inferior product compared to 100% agave. This, says Sklar, is a yo-yoing process as predictable and repetitive as the production cycle which creates it in the first place.

“The pendulum swings to and fro between 51/49 (mixto) and 100% agave, depending on the price of agave and the market reaction to the price,” he says. “Over the past 10 years, the CRT [Consejo Regulador del Tequila] and other industry bodies have made great efforts to improve the image of Tequila into a valued and respected sipping spirit; however, when the price of agave increases over the space of a few years from four centavos to MXP8 (£0.31) a kilo, the price of Tequila shoots up and the market votes with its feet.

“The natural reaction of the Tequileros is to promote the much cheaper option of mixto, until such time as the price of agave falls and 100% agave products become… affordable again. We have seen some very big brand names switch from 100% agave to mixto and back to 100% agave. I’m not sure how many times you can do this and remain credible. Right now, we are getting enquiries again, for mixto. The pendulum is swinging!”

Controlled bottling

The fact that Tequila is an agricultural product is the source of the category’s charm, unique character and, when marketed well, great attraction to spirits-literate consumers. It is also the source of many of the issues that still hamper its growth, both in terms of geographical reach and reputation among the consumers it is trying to attract.

Is there an answer, when your raw material is prey to the variables of pricing, glut and shortage, disease and human speculation? Sklar offers at least a partial solution: “Do what Champagne, Cognac and malt whisky has done: implement a regime of bottling in controlled Tequila zones only.”

However, it’s hard to see this happening any time soon. Bottling at source was proposed by the Mexican government in 2003, but – thanks to US pressure – withdrawn a few years later. Sklar reckons the Tequileros missed a trick.

“What a loss to the control of the category, as well as thousands of Mexican jobs which would have been involved in bottling and all the ancillary services involved,” he bemoans.

“I’m sure that, one day, it will come that Mexico declares that only Mexican-bottled Tequila is Tequila, and I look forward to that day.”