A Run On Tequila's Raw Material...Could Take A Toll On Margaritaville

The Indians who made early versions of tequila believed that the fiery liquor was the drink of the gods. They saved it for kings and priests. But after centuries of watching the descendants of those distillers turn the sacred liquor into a gonzo party drink, the gods may finally have had enough.

For what else but divine revenge could explain the tequila makers' current predicament? The drink's popularity is exploding: Not only are people drinking more tequila but they're sipping finer--and pricier--versions. But with fat profits beckoning, producers suddenly can't get enough of their essential raw material: the spiny blue agave. "It's incredible," says Enrique Fonseca, whose distillery is in the town that gave the drink its name. "Just when we find ourselves with a growing market, we're faced with a serious shortage of agave."

While the regulatory council that oversees all things tequila is keeping mum about the scope of the shortage, the market speaks loud and clear. A year ago, a ton of unprocessed agave cost just over $40; in December, that same ton cost $480. A census directed by the council won't be ready until April, but some producers estimate it will find that the number of agave plants in the tequila-producing region of central Mexico is 40% of what it was only four years ago.

Still harvested by hand with the same long-handled spade used by the current growers' fathers and grandfathers, the agave plant takes seven years to reach maturity. Once there, it's only good for a single harvest. In the mid-1990s, when agave prices were at their lowest in recent memory, many growers in the region shifted to what were then more profitable crops, like corn. Distillers ignored the problem until it was too late. Starry-eyed with rising profits and focused on efforts to standardize tequila's quality, they did little to offer incentives so they'd have agave in the future. "We bought the milk jug before the cow," says Rogelio Ruiz, who runs a family distillery in nearby El Arenal.

FRAT PARTIES. Add to that shortage a freeze in 1997 that was the worst in 100 years, plus a bacteria that's killing young plants, and you've got fodder for the theory of divine retribution. It could be that the gods are angry at the producers' delusions of grandeur. With consumption up more than 20% a year over the last four years, tequila is now the fastest-growing liquor in the world. Taking a cue from makers of California wines, producers have been working to upgrade the drink's image, hoping to shed its reputation as a cheap fuel for frat parties. Producers helped establish the regulatory council in 1994, came up with minimum standards, and are introducing consumers to the virtues of premium tequila. Aged in barrels for up to a year, it's sipped like cognac rather than downed in shots or slurped in margaritas. There's just one problem: Without the added sugars of cheaper versions, it requires twice as much agave. So as premium tequila has taken off, the spiny plant's price has gone ballistic.

Producers now have to decide how much of the higher cost of agave to swallow and how much to pass on to consumers. One indication of the blow drinkers should brace for is the price of the high-alcohol concentrate that's shipped to the U.S. and watered down to make many basic tequila brands. Since March of last year, it's up more than 200%. Premium tequila lovers may face an even bigger hit, possibly souring demand just as tequila was cutting into the market now dominated by whiskeys and fine brandies. Fonseca, whose Tequilena distillery specializes in pricier versions, estimates many of his best tequilas will rise $10 a bottle.

A Run on Tequila's Raw Material...Could Take a Toll on Margaritaville (int'l edition)

Unless they're willing to pay more, some fans may find their margarita glasses empty. Ruiz says that while his distillery normally runs three daily shifts, it's down to one because of the shortage. Major producers like Jose Cuervo and Sauza have their own vast agave fields, but the jump in demand has meant they've also been buying on the open market. Even Cuervo won't be able to produce what the market is calling for this year, says Enrique Legorreta, the company's director of operations, adding wistfully: "For tequila, these are difficult times." He might have added: For tequila lovers as well.

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