Agave Shortage Challenges Small Tequila Suppliers


Dear Client:

As is the case with many other crops used to make alcoholic beverages, the supplies of blue agave used to make tequila have always been a roller coaster ride between shortage and oversupply. As the current demand for tequila increases, the agave industry is in the beginning stages of a shortage that has some small tequila producers worried.

A HISTORY OF TEQUILA SUPPLIES: Some of you may recall the devastating agave shortage that stretched from the late 1990's into the early 2000's. An increase in demand coupled with disease and other poor environmental effects caused the number of agave plants to fall from 202 million in 1997 to 107.5 million in 2000, according to Lloyd's Mexico Economic Report. Meanwhile, prices for agave jumped from less than 1 peso per kilo in 1997 to an average of 11.55 pesos per kilo in 2002. The Association of Tequila Bottlers and Brand Owners said 30% of its members were out of business by mid-2000.

From 2009 to 2011, the price of a kilo stayed under one peso, according to OEIDRUS Jalisco, but the blue agave industry has now entered into another period of short supply. In 2012 the average price per kilo jumped back up to 2.27 pesos and as of July 2013, a kilo of agave would run you about 4.79 pesos."At the end of the day it's offer and demand. Right now we don't think we have enough agave to supply the demand for tequila," David Suro-Pinera, owner of Siembra Azul tequila and founder of the Tequila Interchange Program, tells WSD.

NEW FACTORS INCREASE DEMAND FOR AGAVE: Although this shortage is not predicted to be as catastrophic as the last one, there are a variety of new demands for the agave. For one, there are exponentially more tequila brands that hit the market during the years when agave was so cheap, many of which are 100% blue agave. High-end and super premium tequilas have also skyrocketed. Super premium tequilas were almost non existent in 2002, but volumes jumped 430% to nearly 2 million cases in 2012, according to DISCUS.

The agave nectar industry is also growing due to the interest from the mixology community and consumers who believe it is a healthier sweetener option. Additionally, China just lifted its ban on 100% blue agave tequila in June creating even more international demand for the product. The first tequila shipment to China hit the market last month. The impact of this move has yet to be felt, but Mexican officials say they expect to send 10 million liters of tequila to China over the next five years, reports the BBC.

BIG SUPPLIERS SECURE SUPPLIES AHEAD OF SHORTAGE: Many of the big suppliers learned their lesson from the last shortage. They have invested heavily in their own agave supplies and were able to store up inventory when agave prices were cheap, says David.

"Over the past few years, the agave supply has gone from oversupplied to a tighter supply position and prices in the market reflect this," Ann Stickler, svp global managing director for tequilas, Brown-Forman, confirmed to WSD. "At Casa Herradura, we grow or contract much of our agave and utilize an external open market to hedge our agricultural risk. We plan our agave supply in anticipation of the demand 7 years later."

As a result, the larger companies should be able to weather the shortage without increasing their prices on the shelf. "If the prices continue to go up and the larger distilleries can hold a lower price, partially based on reserves of tequila and agave they've already secured, it's possible the smaller brands might be going away and that the category will go through a restructure in 2014, " says Adriana Gonzalez, managing director of importing company GIMA International and co-founder of Tres Caballos tequila.

MEZCAL FEELS THE PRESSURE: Technically, tequila producers can only use blue agave from about five states in Mexico: Jalisco, Nayarit, Guanajuato, Michoacan and Tamaulipa. "However, the reality is slightly different," says Ivan Saldana Oyarzabal, the creator and distiller of Montelobos Mezcal, which is represented by William Grant & Sons in the US.

Ivan, who has a PhD in the study of agave and lives in Oaxaca, Mexico, says when there is a scarcity of blue agaves it's not uncommon for farmers to smuggle in blue agave from outside the legal denominations, insert it into a legal denomination of origin and claim it grew there. He says many of the agaves being smuggled into Jalisco (or other legal denominations) are from Oaxaco, where most Mezcal is made. This has the Mezcal industry worried about their own shortage.

He added that it's not a practice many tequila companies would even be aware of. "This is being done on the grower level, many companies are doing everything legal and likely do not know about this shenanigans."

SMALL SUPPLIERS RESPOND: Both Adriana and Ivan are confident their brands will weather the storm. Adriana says Tres Caballos has "excellent" relationships with its suppliers and they have also taken steps to ensure they will have enough supplies. Ivan says Montelobos Mezcal will not suffer from the shortage of agave because they partner with a distillery that has its own raw materials.

"I think it's going to be a very good test for brands like us and how we're going to be able to pass by this shortage that is imminent right now," says David. As for Siembra Azul, he says the real challenges lie ahead as they will likely be forced to raise the price.


We regret to report Harry J. Shapira, the executive vp of Heaven Hill Distilleries, lost his ten-year battle with cancer on October 13. He was 66.

Harry was born in 1947, son to David M. Shapira, co-founder of Heaven Hill Distilleries. Harry graduated from the University of Louisville's College of Business and went on to serve two years in the US Army at the Pentagon during the Vietnam War, reports the Courier-Journal. Before going to work in the spirits business, he managed his family's chain of retail clothing stores founded by his grandfather. In the mid-1990s the retail stores were closed and he began to focus on the company's distilled spirits.

During Harry's years of leadership, the company expanded its offerings from bourbon and whiskeys to numerous other spirits products. He also helped create and design the company's two new modern attraction centers: the Bourbon Heritage Center and the Evan Williams Bourbon Experience, set to open next month. He was also president of the Shapira Foundation, which has donated funds to organizations such as the Jewish Community of Louisville, the Frazier Rehab Institute, Jewish Family and Career Services and the Keneseth Israel Congregation.

He is survived by his wife of 42 years, Judy F. Shapira; his son Adam Shapira, a cardiac electrophysiologist in Dallas and his wife Debra Kissner Shapira, and their two daughters Lydia and Audrey; and his younger son Ian Shapira, a Washington Post staff writer, and his wife Caroline Turner Shapira, and their daughter Margot.


GLENMORANGIE HAS REACHED THE 100,000-CASE milestone. In four years Glenmorangie, which is part of the Moet Hennessy portfolio, claims to be the fastest growing single malt Scotch whiskey in the US for four consecutive years, according to a release. "This great accomplishment is a testament not only to the premium quality of our single malt, but to the strength of the fundamental partnerships between brand, distributor and retailer," says Jim Clerkin, Moet Hennessy USA chief.

AS DARDEN RESTAURANTS CONTINUES TO STRUGGLE, shareholders are calling for the company to split the business, reports WSJ. Barington Capital Group, a hedge fund that owns 2.8% stake in Darden, has suggested the company split off the Olive Garden and Red Lobster chains to form a separate company. Darden currently has more than 2,1000 restaurants in the US, but has been hurt by economic weakness and quick-service restaurant.

JORDAN VINEYARD & WINERY HAS BRANCHED OUT INTO tablet technology for on-premise beverage programs with the Tastevin app. Tastevin is a digital wine list app created by Jordan chief John Jordan, and wine technology entrepreneur Josh Hermsmeyer. The app disseminates tasting notes, labels, photos, and other rich media to iPads, integrates directly with all major POS systems to gather real-time sales data previously impossible to attain on-premise, eliminates embarrassing out-of-stock situations, streamlines inventory management, helps boost slow-moving inventory, aids staff trainings, and saves time, money and paper, according to a release.

PERNOD RICARD HAS RELEASED a limited edition flavor inspired by the city of Chicago. Absolut Chicago is infused with olive and rosemary and is now available in 750 ml bottles for approximately $20. Absolut Chicago is the seventh city-inspired flavor launched by the company following New Orleans, Los Angeles, Boston, Brooklyn, San Francisco and Miami.

OREGON-BASED EASTSIDE DISTILLING is releasing three limited edition holiday rum liqueurs: Egg Nog "Advocaat," Holiday Spiced and Peppermint Bark. The drinks are available online and at Oregon and Washington liquor stores with a suggested retail price of $25 for 750 ml bottle.

PANACHE BEVERAGES HAS ANNOUNCED several new hires. Former Heineken USA on-premise sales representative Louis Crocco has joined the company to coordinate merchandising nationally and acting as the New York regional sales and marketing manager. Beaux Olaiya, who will be managing Texas, comes to Panache from RNDC. Matthew Lipe, who has spent two and a half years with Domaine Select Wine Estate and nearly two years at Bee Hive Distributors in New York, will be managing the Northwest division, which includes Northern California to Washington State. Sara Sabour joins Panache as a brand specialist in Georgia. For 16 months she focused on Fireball Whiskey and its on-premise sales and marketing. Having worked in the industry for ten years, Zach Sharaga will be joining Panache in an ambassadorial/educational role for the company's entire portfolio.

Until tomorrow, Emily

"When you do something that basically is guaranteed to succeed, you're closing the possibility for discovery."
-- Milton Glaser

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