Tequila Shortages Will Keep Happening. This Is When the Next Will Be.
2018 got off to a rough start for tequila lovers. In January, reports that we were facing down an agave shortage started coming out. The shortage meant less tequila and higher prices, and prospects would continue to look bleak until around 2021, experts from the Tequila Regulatory Council told Reuters. It appeared that the booming tequila market was going to be gutted, a victim of its own success.
The more alarmist takes on the tequila shortage have quieted down some as people worry about shortages of other spirits like Japanese and Irish whiskey. But the tequila problem hasn’t been fixed in the long run. Agave shortages and surpluses have been regularly happening in the tequila market for decades, and it won’t be long before another shortage comes around. If history is any indication, the next shortage will happen around 2028-2030.
“Right now, we’re at the end of a shortage,” Antonio Rodriguez, the director of production at Patrón, tells Supercall. This one was particularly bad, he says, and the price of agave reached its highest in history at around 25 pesos per kilo of agave. A bottle of tequila requires about five kilos. Rodriguez says that there’s now “enough agave (that) the crisis is pretty much over” in the short term. In the long term though, the agave market looks a little less stable.
The amount of tequila that can be made and the cost of that tequila depends on the quantity and cost of agave. Agave is an agricultural product that goes through the same price increases and decreases that markets for fruit, vegetables or meat do. It’s the basic principle of supply and demand. When supply is low and prices are high, farmers plant more. That new agave all matures and becomes market ready at the same time, making supply high and causing the prices to dip, so farmers plant less in those years. And on it goes, making a graph of agave prices look like a monotonous roller coaster of peaks and valleys.
“Agave takes roughly seven years to mature,” Alexander Lowry, the director of the master of science in financial analysis program at Gordon College, tells Supercall. “What happens is you get people with very short memories.”
Because of blue Weber’s growth cycle, the shortage and surplus cycle vacillates in seven- to 10-year intervals. For example, growers planted a lots of agave in the past couple years because of the shortage. So much agave, according to Rodriguez, that there’s likely to be a surplus around 2021-2023. Farmers will plant less during the surplus, leading to a shortage seven years later when there’s less agave.
The current shortage started to become apparent over the past couple years, and was made worse by a sharp increase in demand for tequila that doesn’t seem like it’ll go away anytime soon. Demand rose 9.9 percent from 2016 to 2017, according to the Distilled Spirits Council, and much of the gains were in the premium sector.
“The main thing that is different about the agave and tequila market today is that the consumer demand for tequila has grown exponentially,” Jenna Fagnan, the president of Avión Tequila, tells Supercall. “Consumers are more savvy about the tequila and liquor industry as a whole, and most consumers are more connected to the story of the brands they choose to drink.”
As consumers have become more savvy, there has been a move towards 100 percent agave tequila and away from mixtos—tequilas filled out with non-agave spirits. Mixtos can be as much 49 percent non-agave spirit, meaning an individual bottle of 100 percent agave tequila can require almost twice as much agave as a mixto.
The Consejo Regulador del Tequila has numbers on the amount of agave and tequila produced since 1996. In 1996, around 430 million tons of agave was used to produce 29.4 million liters of 100 percent agave tequila and 105.3 million liters of mixto tequila. By 2017, the preference switched. People drank 150.8 million liters of pure agave tequila in 2017 compared to 120.6 million liters of mixto. Despite the difference of only around 30 million liters, 690 million tons of agave plants went into making the pure tequila and around 265 million tons went to the mixtos. Farmers would have needed to predict the increase in brands making pure agave tequila around seven years ago to have met the current demand.
Those new brands the farmers were unprepared for will be hurt the most. “When you think about these swings,” Lowry says, “they benefit the biggest growers and tequila brands because they eliminate the upstarts.” Established brands have more cash to buffer against the costs, as well as reserves to draw on. Smaller brands have to resort to making mixtos or using immature agave plants, which not only produces worse tequila, it can accelerate future agave shortages.
We know the date the next shortage will likely happen, but it doesn’t have to be as dramatic as the current one. At Patrón, they use set contracts with farmers so that they know how much money they will be taking in. Avión owns its own agave fields, allowing it to directly control its agave supply. Some new brands are deciding to look outside of tequila and the established agave market in general. Revel Spirits is making an agave spirit with 100 percent blue Weber agave just like tequila, but doing it outside of the designated states. And inside the five states legally allowed to make tequila, Rodriguez says that producers are getting a better handle on how much agave they need so that they won’t be caught flat footed again during a spike in demand.
At the end of the day, tequila is made from an agricultural product that goes through a regular cycle. The industry can see when the next shortage will be, and the booms and busts haven’t hurt the growth of tequila in the long run.
“It is a cyclical process historically, and will probably continue to be so,” Fagnan says. She adds that the solution “all comes down to long term planning,” but “it is very difficult to forecast out that far in the future.”
So should we expect another shortage in 2028? Yes, but it’s nothing we haven’t seen before.