Agave shortage: the hidden costs

07 August, 2014

As a result of this, the price of agave has hugely increased in Oaxaca where most of the Mezcal comes from. Of course this then has a knock-on effect and so the price of Mezcal is also increasing dramatically.

I advise my friends that given the banks offer around 1.7% interest rates on deposits, an investment in 100% agave Tequila (and also Scotch whisky) makes a lot of sense.  We know that prices are rocketing, and with a world-wide interest in Tequila, this becomes a very valid investment for short term profits. 

The CRT is trying to control agave production by introducing strict rules about what agave may be planted and keeping records. However when the prices rocket, and producers are running short of raw material to ferment and distill, the finer points of official and unofficial can become, blurred.

In fact, Tequila is massively underpriced.  Unlike Cider, Beer, Wine, Whisky, Cognac etc. the source crops of which are annually harvested, it takes around eight years for the agave to reach maturity. Once it is cut the grower has to wait another eight years for a paying crop. When ready, the grower currently receives around 6 pesos a kilo for the cropped ‘Pina’, and that is after cutting off the long spikey leaves and root stump. A 50 kilo Pina might therefore net approximately 300 pesos (approx. $23 US) which after planting, tending and cropping over an eight year term, is not exactly rich pickings.

It would be an interesting project for an economics student to work out what would be a commercial cost for producing Agave in say the hot dry parts of Spain, and compare this with current prices in Mexico. I would be astonished, if it were not at least treble the price.

Mexico has worked out a very Mexican solution to this shortage, by having a category of Tequila known colloquially as ‘mixto’ (mixed) or more accurately as 51/49 because is may be produced using a minimum of 51% real agave, and maximum of 49% sugars from almost any other source, except other forms of agave. This has always struck me as really weird. Can you imagine the Scotch Whisky Association allowing a category of Scotch called ‘Mixed Scotch’ which may be minimum 51% made from genuine Scottish cereals and up to 49% made up of sugar from sugar cane, beet, any other source, perhaps even agave? Sounds ridiculous doesn’t it.

Carlos Camarena, from the La Alteña distillery, says that prices going even higher than where they were 12 years ago. He says the agave thefts have now started again, and he has to hire armed guards to protect his plantations.

The tequila industry is once again going through one of its swings from feast-to-famine.

Dale Sklar is MD of Wine and Spirit International.

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