Our First Post: the 2000 Agave Shortage

Originally posted on Tequila Aficionado on August 8, 2000

From the Editor… 

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Agave Shortage

Does a shortage of agave loom in the near future for tequila distillers? It looks like it. According to a report in the LA Times, Dec. 24, 1999, tequila prices will jump due to the shortage.

Tequila Viuda de Romero purchased by French company 

Paris, Jan. 17, 2000 – Pernod Ricard Americas a French spirits company has purchased Tequila Viuda de Romero and all of its holdings. This includes the brands Viuda de Romero, Real Hacienda, and Sangrita which has an annual production of approximately 1 million bottles and is distributed in the US, México, Chile and the Dominican Republic.

According to Pernod Ricard Americas president Michel Bord, “This acquisition permits us to reinforce our distribution structure in the Mexican market which has already experimented strong growth for many years.”

This type of acquisition comes to no surprise when Tequila is having an average annual growth rate of 16% in the worldwide market.
AP

Quality Control for Tequila

Quality control program for Tequila exports to Europe
Mexico, Jan 21, 2000 – The Mexican Institute of Industrial Property’s Tequila Regulatory Council along with other Tequila producers will be instituting a quality control program.

Mezcal Exports on the Rise

Mexico City, Apr. 03 – This could be the year for Mezcal. In 1999 1.5 Million liters of Mezcal was exported showing an increase of 25% more than the previous year. Exports could double this year thanks to trade agreements with the European Union and the lowering of duties on Mezcal. 
AP

Mezcal & Tequila distillers in Agave war

Mexico City, April 24 — Tension has increased in the last few months in Jalisco and Oaxaca. The shortage of Agave for making Tequila is at an all time low and has prompted distilleries in Jalisco and other Tequila regions to scramble for raw product because of shortage and skyrocketing prices. Since December of last year there have been reports of illegal exportation of agave from Oaxaca to Jalisco for the purpose of making Tequila. This is illegal due to the violation of the rules of origin or Appellation de Origin controllee of 1977 and 1996. There are reports of confrontation between Mezcal distillers from Oaxaca and convoys of trucks full of agave bound to Jalisco. Sources say that since December at least 15 thousand trucks filled with agave have been “stolen” and taken to Jalisco.
AP

Tequila crisis; almost 50% of agave exhausted in 3 years

Público accessed an internal study conducted by Sauza Tequila, which reveals consumption of almost half of all the blue agave plantations, tequilas raw material, within the last three years. This has placed the industry in one of its worst crossroads.

Protected tequila zone extended for more agave planting

Tuesday, June 27, 2000
The IMPI authorized the expansion of another 450 square kilometers by Including the municipality of Romita, Guanajuato in the geographic
region

Tequila production likely to fall

July 4, 2000
After the big increase in the popularity of tequila in the U. S. and abroad, there might not be enough to supply the demand; at least not 100 percent agave tequila. Due to the shortage of agave, pricing has skyrocketed by 1000 percent in only a few months which means an increase in tequila by as much as 200 percent. The shortage is more serious than first thought. With the current situation production of tequila is expected to fall in the next few years by as much as 50 percent by the year 2002.
AP

Mexican government guarantees continued production of tequila and no changes official Norma

Sunday, July 9, 2000

Herminio Blanco Mendoza from Secofi, the Mexicangovernment agency that oversees the tequila industry, proposed to put in place permanent and obligatory policies, which will guarantee enough agave to supply at least 80 percent to the tequila industry.

Mendoza said the new policies would make sure the tequila producers have enough agave to continue producing. Part of the policy would include cutting back on exports to other countries.

The government agency feels confident that agave growers and tequila producers will soon come to a resolution in order to stabilize the price of agave. This will be very dependant on the sanctions placed on those having monopolies on both sides of the industry. The agency will penalize and prosecute those heading monopolies affecting the industry. It is anticipated that producers will not pay more than 4.50 pesos per kilo when purchasing agave.

On the same note, Secofi made it clear that there will be no changes in the Norma (NOM), which guarantees that any tequila have at least 51 percent agave. This will maintain the credibility of the name tequila. Earlier this year the lowering of this Norma had been considered in order to conserve agave.
AP

No deals 

Tuesday, July 11, 2000

Agave farmers say no to lowering the price of agave, the precious plant used for the making of tequila. They claim the producers are now reaping what they sowed. Lack of planning and collaboration by producers and farmers has created animosity within the industry. Just a few years ago, when agave farmers were in need, they claimed the tequila industry had turned their back on them. Now, with tequila in demand and the shortage of agaves, farmers are demanding higher prices for their harvest. They are holding their prices above 12.50 pesos per kilo while the tequila producers are not willing to pay more than 4.50 pesos per kilo. Farmers are not willing to negotiate and are holding out knowing they will be able to sell the agave to the highest bidder when the time comes.

The following companies are willing to wait for the agave prices to drop:

Compañía Tequilera de Arandas     Orendáin
Cuervo                                          Parreñita
Destilería 501                              Productos Finos de Agave
Destilería González                     Santa Fe
Destilerías Unidas                       Sauza
Don Julio                                       Tequilera Del Salto
Don Roberto                                 Tequilera la Cofradía
Madrileña                                     Tequilera Newton
AP

Still no compromises

Saturday, July 15, 2000

Agave farmers and tequila producers have yet to agree on the fair price of agave. Currently 30 of the 72 distilleries have suspended buying agave until prices come down.

Aberto Curis, president of the Cámara Nacional de la Industria del Tequila (The National Chamber of the Tequila Industry; CNIT) says different studies have shown that the high prices are due to commercialization and not necessarily a shortage. This should place the production of agave at 2 pesos per kilo not 14 pesos. In order to produce one liter of 100% agave, 6 kilograms of agave are needed.

According to Bob Emmons, author of The Book of Tequila, if no compromise is met and agave pricing is not lowered, production costs will continue to shoot up and we could see 100% agave tequila selling for $75.00-$100.00 per bottle in the US by the end of the year.

Tequila represents almost 2 percent of the world’s wine and spirit market. The US is tequila’s biggest importer and would be hardest hit if prices continue to rise.

According to sources, the CRT (The Tequila Regulatory Council) and the CNIT will continue to meet with producers and farmers on Monday in hopes a resolution is reached.
AP

Still negotiating

Monday, July 17, 2000

Agave farmers stated today they would be willing to bring the price of agave down between 7 and 8 pesos per kilogram. They feel this is a fair price for agave. In addition, they stated how they where being hurt by the boycott of agave by the tequila producers. Some have taken to the streets in front of some producers to protest this measure.  No official offers have been made from either side to settle issues.

Agave from Zacatecas being looted by Tequileros

Tuesday, July 18, 2000

Zacatecas’ hills, bordering Jalisco, also produces a large amount of blue agave which has become very attractive to tequila factories since the shortage. Zacatecas’ officials intend to put a stop to the looting of this unregistered agave which is used to produce their own spirits.
CR

NOM standards modified

Tuesday, July 18, 2000
Charles Royston: Reporter/Guadalajara correspondent
TequilaAficionado.com

Herminio Blanco Mendoza head of SECOFI (Department of Commerce and Industrial Development) announced yesterday the new NOM (Mexican Government Standards) to control and regulate the production of tequila. The NOM has been modified to establish a definite solution to the agave and tequila situation.

This new NOM will not affect in any way the content of sugars derived from blue agave. The minimum percentage will remain at 51%. Producers will also continue producing 100% agave tequila with all of their sugars provided by blue agave.

The NOM has added standards which will encourage better relationships between Agaveros and Tequileros. The new policy will require tequila companies to have at least 80 percent of their agave requirements guaranteed by agreements with farmers or plantations of their own.

All sectors involved in the tequila production will review new policies which will be published in August of this year.

Blanco also mentioned that the agave problem is in great measure due to over pricing. An investigation is underway by the CFC (Comision Federal de Competencia) to determine if these practices are a monopoly.

SECOFI guaranteed the supply of agave for tequila nationally and internationally if all comply with new measures.
CR

Tequilero and Agavero Agreement?

Tuesday, July 18, 2000

Agavero groups met late into the night and are expected to announce their price proposal today. Agaveros and Tequileros will reconvene on Wednesday and if the price is acceptable to the tequileros, will make it official.

Producers insist that the price should be approximately 4.50 pesos per Kilo while farmers will not charge under 7 pesos per kilo.
CR

Proposals being considered today

Wednesday, July 19, 2000

As of today, agave farmers have not been able to agree upon a price to present to the tequileros. There are a couple of proposals currently being considered by the CNIT (National Chamber of the Tequila Industry).

The first proposal is being made by the Union de Mezcal y Tequila (“MVZ”), one of the largest agave groups in Jalisco, which is comprised of 384 associations. The president of the Union, Angel González Aldana, stated that they control 75 to 80 percent of the agave and are willing to establish a base price of 10 pesos per kilogram for agave with a yearly review for adjustments.

González also said that the price of 4.50 pesos per kilo is not possible because the cost of cultivating this plant is 3 to 4 pesos per kilogram. If prices continue at this level, “we could kill the goose with the golden eggs.”

Jima de Agave, also considered a large agavero group, stated that they will lower their agave prices to stop the rising prices of tequila.

Brígido Alvarado Jáuregui, a large agavero out of Arenal, Jalisco, stated that the problem of overpricing would not be resolved by dropping agave prices. The major problem stems from not having unity within the industry – these two groups need to come together and arrive at a consensus. The government needs to step in and help resolve this problem or all parties will lose in the end.

In reviewing the CNIT agave figures, the issue is not so much that there is not enough agave, but that there was a false impression that caused prices to rise initially. The study shows there is 108 million registered agaves plus another 30 million that have been planted since last year. The objective on both ends is to reach a price that will allow the industry to provide tequila at a reasonable price to the marketplace.
CR

Agave shortage news reaches Wall Street

Thursday, July 27, 2000

Reports of problems surrounding the tequila industry blue agave shortage have raised eyebrows on Wall Street.

Yesterday, Fitch, one of the largest international credit rating companies, reported on the consequences Cuervo, the largest tequila company in Mexico, will have due to the shortage of the raw material needed for the production of tequila.

Fitch reported, that even though Cuervo will  remain financially sound, the lack of agave will have an adverse effect on all tequila companies.

Unlike other companies who did not foresee the explosive growth of the industry and the shortage, Cuervo started preparing itself for this shortage five years ago by buying the harvesting rights from several farmers. They even have a large reserve on hand if prices continue to rise.

Even with these precautions in place, Fitch stated that Cuervo would not have enough agave to keep up with their production demands for the next two years.

The major tequila companies including Cuervo have been holding their ground in refusing to purchase agave at the current prices, claiming the farmers are not being fair with their pricing. Prices have skyrocketed from 85 cents per kilo a year ago to the current price of 14 pesos. It has now been 23 days since Cuervo and others have boycotted the agave farmers by not purchasing their products with the hope that the farmers will be pressured into lowering their prices. The farmers feel justified for what they are asking for and are not backing down.

The waiting game continues

Friday, July 28, 2000

After three weeks of boycotting, tequila producers have yet to reach an agreement with agave farmers.

Agave farmers are looking for more than just a fair price for their agave — they are also seeking financial security and binding contracts to continue cultivating this precious succulent.

The largest farming organization in Jalisco has agreed to lower their prices from 14 to 10 pesos per kilo, but according to Charles Royston (our Guadalajara correspondent) the tequila companies are unwilling to meet them halfway, and are determined to continue the boycott
until the farmers give in to 8 pesos per kilo.

Agreement finally reached for tequila

Friday, August 4, 2000

After a 30-day standoff, an agreement has been reached by all 72 tequila distilleries and The Unión Agrícola Regional, the largest group of agave farmers with 80 percent of the blue agave cultivated in the region.

This agreement brings to an end to one of the roughest crises seen in the region for years. It provides better planning for future growth and puts in place safeguards so this situation does not recur.

The signing of this agreement will bring the price of agave down from 14 to 9 pesos per kilo and includes benefits for the blue agave farmers. In exchange for lower pricing, the tequila producers agree to extend the following benefits among others to the farmers: 1) social security; 2) a guaranteed profit for their product; and 3) technological support to better their crops and bring costs down. Angel González, president of the union, intends for this agreement to benefit 12,000 to 15,000 farmers and their families. The CNIT (Regional chamber of the Tequila Industry) also promised to purchase all existing ripe agave and strategically plan to avoid a surplus or shortage in the future.

Not all farmers were happy with this agreement. Four other organizations representing many more blue agave farmers rejected this proposal stating it did not promote a real bond between farmers and producers for true strategic planning needed to break the vicious agave cycle of surplus and shortage. Joaquín Romero Soria, who heads one of these groups, stated that it did not make sense to agree on pricing when no true relations exist between producers and farmers. Albert Curis, president of the CNIT, stated they were willing to negotiate with these organizations but warned they would not pay more than 9 pesos a kilo for the agave.

With this new plan in place, the price point for agave will be 9 pesos per kilo until 2002. In 2003 the pricing will drop down to 5 pesos per kilo and will be adjusted accordingly depending on production costs. The drop to 5 pesos will be due to the amount of agave that should be available by 2003, therefore stabilizing prices.

The government of Jalisco gave its blessing to the new agreement between the two parties. It was very pleased that future planning has taken place to cover the production cycle for the next few years. Agave purchasing immediately resumed once this agreement was signed.
AP

Tequila Crisis 2000 Over

Tuesday, August 8, 2000

Finally, after days of meetings and discussions over the price of agave, an agreement was signed between the “Camara Nacional de la Industria Tequilera” (CNIT) and the largest agave group “Union Agricola Regional de Productores de Mezcal Tequilero del Estado de Jalisco” (UARPMTEJ) on August 2nd. This document provides a guarantee that the production of tequila will continue.

The final agreed upon reference price would start at 9 pesos per kilogram, which is a significant reduction from the previous market price of approximately 14 pesos per kilo of blue agave.
According to the CNIT and UARPMTEJ this agreement will establish the basis for new agreements for the following years. Tequila production for 2000 is estimated to have a growth of about 5% from last year, and there is no indication that there will be a problem meeting these future projections.
This document also establishes that in 2003 there will be a reference price of 5 pesos per kilogram. Both parties welcome this since by then there should be enough agave for tequila production.
C R

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