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Updated May, 2011

The Agave Shortage & Glut

Shortages, disease and an uncertain future

Part 1: The shortage of the 1990s

Agave plant dead from fungus/soft rot infectionIn the 1990s, a shortage of agave posed a gloomy future for tequila distillers who were on the verge of a boom in the product's popularity. Crops had been devastated by the fusarium blight, and many independent farmers had planted alternate crops instead of agave over the previous decade. The remaining agave were in high demand. This put agave prices on an accelerating, upwards spiral that earned it the nickname, 'blue gold' (oro azul).


Fusarium oxisporum was accompanied by a bacteria called erwinia caratavora, the pair raging through plantations. A 1997 survey conducted by Mexico's Tequila Regulatory Council  estimated that 27% of the country's agave crop was infected with at least one of the diseases. Many farmers and scientists said that figure was actually much higher.


A report from the University of Guadalajara (1998) on the diseases said this (Babel Fish translation enhanced by this author):

"Whereas tequila has gained space in the international market, its raw material, the agave, has generated enormous losses to the producers due to environmental effects, burns, residual effect of herbicides, unbalanced nutrition, plagues and to a sudden disease that the agriculturists know as 'marchitez.' The tequila industry has a great impact on the non-single economy of Jalisco, but of all the country. If the price of the agave collapses, it affects the society and causes serious political, economic and social problems in the region.

"More than 22% of the plantations suffer the disease, in the opinion of the teacher Ana Valenzuela, investigator with 15 years of experience in the branch.. According to sounding practiced by Advice Regulating of Tequila, in more than 203 million plants (practically all the zone where blue agave grows), 22.3% display symptoms of some of the three variants of the disease.

"In the healthy cultures plants with symptoms of marchitez appear suddenly, beginning in the leaves. Days later it invades all the plant. Within months, it will completely be devastated, dry and with such weakness that a push is enough to make it fall to the ground.

"The specialist emphasized that an attitude directed to simply killing the plagues or fighting the diseases, would lead solely to a limitless consumption of pesticides or herbicides, whose direct consequences would be the increase of the environmental production costs, the increased resistance of the diseases, and cases of chronic or acute poisoning of workers of the field."

The result was millions of agave were destroyed or left to rot in the fields, unsuitable for production. Warmer, wetter climate is also blamed for the spread of the disease.


The problem was compounded by bad weather: in late 1996, a rare frost killed off a portion of the immature harvest in Jalisco, further affecting future production.


Dr. Ana Guadalupe Valenzuela Zapata, of the University of Guadalajara, was reported in the Boston Globe, June 18, 1999 as saying, "It's hard for us to admit our national product is in danger, but this is a problem that's getting worse.... I don't know what the smaller producers will do."


Cooked agave headThe article claimed more than 25% of the country's 203 million blue agave plants had signs of disease.


An article in InfoLatina, July 18, 1999, suggested the lost revenue due to these diseases could be as high as $200 million. The fungus fusarium threatened more than 60,000 hectares of agave plantations, with 64 million plants in the ground. By June, 2000, about 20 distilleries had closed from lack of agave.


By June, 2000, production of agave had fallen 33.8% since 1997 and at least 15 small and medium distillers were for sale in the state of Jalisco.  A story from Infolatina, June, 2000 reported 20% of tequila brands vanished due to the agave crisis. The problem was worse for bottlers whose products are distilled by third parties. The price of agave rose 300% between 1999 and 2000.


In mid-summer, 2000, the Mexican Trade Department, with the National Chamber of the Tequila Industry and the Mexican Institute of Intellectual Property, explored an emergency regulation to reduce the minimum of agave permitted in mixto tequila to 30% compared to the usual 51% currently stipulated.


The Boston Globe article claimed more than 25% of the country's 203 million blue agave plants had signs of disease. However, while one report states that, to date, the fungus and bacteria have only been found in Jalisco state, Ana Valanzuela-Zapata reported the diseases in the agave azul are similar to diseases in agave espadin, from Oaxaca.


Back in 1996, Valenzuela-Zapata recommended a project to create a genetic reserve of the tequilero agave and propagation of agave clones resistant to diseases like the "marchiteces." She reported to the Department of Botany and Zoology of the University Center of Farming Biological Sciences, and to SIMORELOS, a program maintained by the Mexican scientific authority, CONACYT, that, "At the moment with the tools that biotechnology offers, it is possible, to regenerate complete plants dividing of weaves or cells in vitro."

Agave fieldIn 1999, Mexican plant biotechnologist Luis Herrera-Estralla offered to develop a disease-resistant agave for the tequila industry. Mexico's research council, CONACYT, offered to pay half of his $500,000 request for funding. This was considerably lower than the estimated $20 million quoted by a US biotech firm. But the tequila industry refused him as too expensive - despite more than $20 million in exports at risk. This spawned outraged comments in the Mexican press about how Mexicans treat their own scientists compared to those from the USA.

Mexican researcher, Benjamin Rodriguez, announced in early 2000 that his laboratory had successfully cloned blue agave plants he hoped would prove resistant to the pests that plague the field crops.

As early as December 24, 1999, a report in the LA Times warned tequila prices would jump due to the shortage - a prediction that proved true by mid-2000. In a few short years, tequila prices rose 60-70% around the world, putting tequila on a price-par with Scotch and other premium spirits.


In September, 2000 Reforma/Infolatina reported the shortage of agave had forced 30% of Mexico's tequila producers to shut down operations and 22 out of the country's 72 tequila companies halted production. Although there were an estimated 137 million agave plants in Jalisco, these were not enough to satisfy demand. The CRT also said that it had fined four companies for importing agave from other states for use in the production of 100% agave tequila.


The shortage has led to an increase in crop theft. According to a story in the Detroit News, August 13, 2000, Cuervo hired 125 security guards protecting its agave fields. In April, it created a security department for the first time in its 205-year history. Despite the armed teams that stand watch, thieves stole 120 agaves cores in one week alone, worth more than $8,000 - more than what most laborers in the region earn in a year. Thefts since the tequila boom began, said the story, range from two agaves to 70 tons of cores worth nearly $70,000.


Agave in Oaxaca waiting to be shipped to JaliscoSome producers whose source of agave had dwindled, went to Oaxaca to buy truckloads of espadin agaves from mezcaleros and agave farmers, even though their use in tequila was illegal. A report in Beverage Business said a truckload (30 tons) a day of agave were being sold  every day from seven different sites around Oaxaca. As a result, agave prices in Oaxaca skyrocketed four or five times its former price, dealing a hard  blow to mezcal producers. Trucks ran day and night between Jalisco and Oaxaca, stripping the agave fields bare.


This in turn meant poorer quality mezcal, made with more cane sugar, and a production drop of two thirds between 2000 and 2004, from 6 million to 2 million litres a year.


Some producers started harvesting younger plants - four and five years old - to meet demands. The lower sugar content meant a lower quality product.


View from Partida, AmatitanMeanwhile, in November 2000, Mexico's antitrust agency, the Federal Competition Commission announced it would release results in its investigation into allegations of monopolistic practices among the nation's agave growers. CFC senior official Luis Prado Robles said the probe was seeking information from all participants in the agave-tequila industry. However, Agave Growers Union leader Jose Angel Gonzalez Aldana said the CFC had not yet requested any information from the association, and denied agave growers engage in any form of anti-competitive behavior.


According to Robert Denton, speaking with this author on NPR in late December, 1999, there was a good crop of agave maturing in the fields - but it would not ripen soon enough to avoid a crunch at the store shelf. That proved true.


By fall, 2000, the number of agave plants had fallen from 202 million to 107.5 million. Agave planting was undertaken on a massive scale. Tequila Sauza announced an $80 million expansion plan, that included planting  more than 10 million agaves.


During this time, production shifted away from 100% blue agave tequila towards lower quality mixto tequilas. During the first half of 2000, production of the top grade fell by 47% while production of mixtos rose 32.2%.


Furthermore, the shortage caused a dramatic increase in the price of agave, which distillers passed on to tequila drinkers. In 1999, growers received less than a peso a kilo for agave. By fall 2000, they were demanding prices as high as 14.50 pesos per kilo, prompting tequila manufacturers to temporarily suspend purchases in protest. As Lloyd's Mexico Report said, the industry appears to have been far more successful at self-regulation and at global marketing than at long-range planning.


Tequila production in 2000 fell 4.9% from 1999, to 181.6 million liters. Due to major price hikes from the shortage of agave total domestic sales increased 513 million dollars from 259 million dollars in 1999, and export sales rose to 450 million dollars from 111 million dollars in 1999. A story in La Reforma, from Feb 16, 2001, reported National Tequila Industry Council (CNIT) leader Alberto Curis Garcia saying production would increase in 2001 by between 2% and 3% from its level last year. Curis said export and domestic prices for tequila on average were up 30% last year.


Cut agave leafThe price per kilogram of agave in early 2001 was between 9 pesos and 11 pesos. Curis said CNIT was working to create a futures market for agave, which it hoped will eliminate major fluctuations in prices.


The Tequila Regulatory Council reported the 2001 production of tequila fell by 20%  to about 156 million liters (41.2 million gallons).  Lloyd's Economic Report for Mexico, April 2002, reported production of 100%-agave tequila had shrunk as many smaller tequila companies either closed down completely or switched to making mixto tequilas. Only 8% of the 6.2 million liters exported in 2001 were 100% agave tequila. 


As part of the industry’s effort to overcome the challenges posed by agave shortages, Tequila Sauza announced that National University (UNAM) researchers would undertake a $7.1 million research project aimed at improving the quality of the blue agave and reduce the incidence of disease.


So for several years there was a small mature harvest for a large demand, but soon the hills were covered in ripening agave, but the demand had not grown to meet the available crop.  The shortage is generally reckoned to have run for the five years from 1998 to 2003, with the peak between 2001 and 2003.


Part 2: Today's glut and the looming shortage of 2010-2012


Untended agave field in Los AltosThe crops planted early this century during the shortage are now mature or maturing. Following the cycle of tequila production, as the agave became more readily available, the price for agave began to fall. It had plummeted to 250 pesos a metric ton as of May, 2007 thanks to the glut of product available.


A visitor to Tequila and Los Altos in 2006 and 2007 could see dozens of fields left untended, many with tall quiotes blooming from dozens to hundreds of plants, weed-infested, no evidence of pruning, and with many uncut hijuelos crowding the rows. For some growers, it was simply not worth harvesting: the cost to harvest the agaves was more than what it would pay.


These untended fields may become the target of insects and predators, creating hotspots for fusarium and erwinia, encouraging its spread to other fields. While figures on the spread of the fungus in today's agave crop are scarce, at least one report has suggested fusarium is back again in force and worrying growers.


On June 27, 2007, the Chicago Tribune reported (emphasis added):


Officials report that about 20 percent of this year's crop has a disease, a sign that farmers have turned their backs on their crops. Also, corn production in Jalisco is up an estimated 15 percent this year, a response to another boom -- high corn prices fueled by its use in ethanol. Del Toro worries that some agave farmers might switch to corn permanently.

Quiotes in agave field near ArandasLow cost for agave and increased demand for product, especially in the international market, have encouraged industry growth in the past few years. New distillers have opened and there were about 110 operating in mid-2007. Registered brands reached an all-time high of almost 1,000 by 2007.


But when there is a glut, many farmers plant crops with more immediate cash turnaround, mostly corn and beans. The growers can't afford to wait for the agave price to rise in order to get their payback. In 2007, this author saw some fields where the agave crop had been ploughed under or burnt rather than harvest it. And as a result, the base material, the agave gradually falls to low supply. A story in Reuters News, May 29, 2007 said,


Mexican farmers are setting ablaze fields of blue agave, the cactus-like plant used to make the fiery spirit tequila, and resowing the land with corn as soaring U.S. ethanol demand pushes up prices.


The switch to corn will contribute to an expected scarcity of agave in coming years, with officials predicting that farmers will plant between 25% and 35% less agave this year to turn the land over to corn.


"Those growers are going after what pays best now," said Ismael Vicente Ramirez, head of agriculture at Mexico's Tequila Regulatory Council.


Many growers have started to abandon the crop in favor of corn, whose price has rocketed in line with massive growth in U.S. demand for ethanol after President George W. Bush outlined targets last year to use the corn-based fuel as a gasoline alternative.


Agave supply is also being hit this year by disease in the fields, partly due to farmers caring less for the plants after prices dropped.


"The problem that we are going to see, perhaps by mid-2008, is that a lot of agave is sick," Agriculture Ministry official Arnulfo del Toro said. "That will have to be taken out and production is going to drop a lot."


Agave topTequila aficionados don't have a lot to worry about yet. The fields on fire are those of small, independent growers, many of whom decided to cash in on the 'blue gold'  that agave promised to be, only to find out everyone else had jumped on the bandwagon and driven prices to rock bottom. The major producers have their own fields, and they're not burning anything. In fact, many are planting, and have been carefully storing away tequila for just this sort of event.


It may even be more dangerous to the agave crop if those untended fields are left to grow naturally. They become targets for insects and parasites, and can become hot spots of fusarium fungus, which then can spread into nearby cultivated fields, wreaking havoc on the crop as it did in the 1990s. Better to plow them under, or burn them than to let that happen.


Then when the inevitable shortage happens, agave prices will skyrocket as they did in the late 1990s and early 2000s. That will encourage farmers and entrepreneurs who see the potential, to plant more agave in the hopes to reap the profits in another eight to ten years... or see another glut and falling prices.


In 2000, the frenzy of planting had officials estimating the production of blue agave would reach 46.4 million plants by 2006. That was nearly twice as large a crop as the 24.8 million
plants produced in 2000. "The uncontrolled planting has occurred both within and outside the designated regions," said CRT official Cristobal Mariscal, who is also the director of legal affairs for Jose Cuervo.

Flowering quioteGrowers can demand high prices for their plants during periods of high demand, which encourages additional planting to try to exploit the seller's market. During the shortage, some growers even refused to sell at low rates, forcing distillers to negotiate and compete for raw materials in a seller's market. Some farmers preferred to let their plants rot in the field, rather than sell them cheaply.


A report in Newsweek, 2005 warned,


Like small farmers across Latin America, the 12,000 small agave growers in Mexico are an endangered lot. Prices have tumbled from a peak of $1.70 per kilo of blue agave hearts in 2002 to as little as 14 cents today. In the past three months, hundreds of agave growers have mounted blockades outside the gates of five distilleries, demanding higher prices. The crisis echoes the last glut, in the mid-1990s, when angry growers dumped agave hearts and cut production to protest low prices. But when prices recovered and then soared—by 300 percent in 2000—leading tequila makers began establishing their own farms to ensure a stable supply. Those distillery-owned plantations now grow 40 percent of all agave, and the new glut is likely to bring further consolidation. "Within seven years the number of small growers will have decreased by over 50 percent," says Salvador Gutierrez, a tequila-industry expert at the University of Guadalajara. "This is a new factor in the current crisis."


In the late 1990s and early 2000s, agave prices rose to an all-time high - tenfold over a two year period. An article in Fortune Magazine (October 30, 2000) said "A ton of agave cost as little as $50 in January 1999; it went for $1,500 this summer. Tequila prices have followed suit." Compare that to the current rate of 250 pesos per metric ton - about $25 USD.


While scientists continue to research solutions to the agave's genetic weaknesses, the natural method of propagation, cross-pollination by bats, is impossible because farmers cut off the agave flowers to boost sugar content in the stem. Producers have been working with scientists, mainly at the University of Guadalajara, to study the plant’s genetics and physiology, with a view to increasing its diversity and resilience to disease.


Some farmers fear, however, that cross-pollination could create lower-quality hybrid plants and lead to economic losses. Scientists say a better understanding of the plant's genetics could address these fears.


Either way, even these efforts might not prevent another agave crisis. As over-production causes prices to plunge, farmers are caring less for their plants — and unwittingly creating the conditions for disease to strike again. Negotiations re underway between produces and the agave growers' union, with the CRT acting as intermediary, to get producers to buy some of the excess agave, beyond their production needs, to keep the growers in business. Some of the larger companies have already purchased extra agave, but not enough, say growers.


Agave pups ready for plantingThe CRT has reported a continuing drop in the number of agave being planted since 2000, from 40-60 million during the shortage to only 12 million in 2006, or about 4,000 hectares. Estimates suggest that in 2007 25-35% fewer agave will be planted to allow farmers to plant corn and other cash crops. The current agave glut will last through to 2009 and as demand for ethanol rises, more farmers will dig up their agave fields to plant corn (which has undergone a recent increase in its selling price). But that means by 2010, there won't be enough mature agave to satisfy the expected, growing demand.


The industry currently consumes about 7,500-10,000 hectares of agave for current production. It's easy to see that unless planting is increased, another shortage is looming, probably in the years 2010-2012.


And as in the past, this will mean prices will rise for both agave and tequila, smaller producers dependent on third-party sources of agave will suffer most, many will close, some brands will disappear, and there will be a flurry of planting in fields to try and meet the demands.




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