Two Fingers Too Much?

In an old Warner Bros. cartoon, Daffy Duck ambles south of the border, knocks back a shot of tequila in a local saloon and stiffens suddenly, wide-eyed and pale--much like an unprepped George W. facing reporters without Daddy's friends nearby.

Tequila once served as a drink for the masses, powerful enough to kill unnecessary brain cells (we don't use them all, anyway) yet cheap enough a celluloid duck could afford it. But no more.

Restaurant costs for good tequila rose between 7 and 30 percent last year, depending on the brand. Distillers of fine tequilas increased prices by 39 percent, on average. And, according to the Regional Tequila Chamber in Guadalajara, Mexico, the price for agave, the spiny plant that is the raw material of tequila, shot up nearly 300 percent. Blame it on nature, impute the elements or pin it on proletarian movements against oppressive capitalism, but for the tequila industry as a whole, this may be the most important year in recent history.

The problems began in the mid-1990s. During the last decade, Americans splurged on premium tequilas, buying just over 3 million bottles in 1995, more than 6.5 million in 1999. "Five years ago, you had Sauza and Cuervo and that was about it," says Doug LaPrelle, manager at Blue Mesa. "People know a hell of a lot more now about tequila than they do about vodka or bourbon."

The best premiums--Don Julio, Sauza's Tres Generaciones or Herradura's Seleccion Suprema, for example--contain 100 percent distilled agave. These are sipping tequilas aged in charred oak barrels for several months or several years. At San Diego's famous El Agave Restaurant & Tequilaria, premiums typically cost between $10 and $18 per shot. Jose Cuervo's 1800 limited edition, however, will set you back $145 a shot--not the sort of thing you want to line up and drink from end to end, unless you have a designated driver, a paramedic and a banker handy. They offer 665 mind-numbing tequilas, a rather excessive selection. It would take weeks to sample each brand. Blue Mesa stocks a more manageable 60 tequilas, the good stuff ranging between $5.95 and $25.

To earn the name and to distinguish itself from mezcal (as if the dead worm floating listlessly in some mezcals didn't set the two apart), tequilas must be distilled from agave azul (blue agave) grown in the state of Jalisco near the town of Tequila. Mezcal, on the other hand, uses spirits distilled from eight different varieties of agave grown in Oaxaca. By Mexican law, all tequilas must contain at least 51 percent blue agave. "I didn't think people would know that much about it," says LaPrelle, "but some people know a lot."

As U.S. demand for the good stuff expanded, natural disasters and economic protest shook the industry. Four years ago, frost knocked out a significant crop of young blue agave plants. At the same time, a disease described variously as a virus or a fungus struck agave farms, destroying almost 10 percent of the crop each year. Last March (you may want to sit down for this) fire swept through a distiller's warehouse, consuming 6,000 barrels of premium tequila--about 1.5 million bottles' worth. Finally, as the U.S. market for Mexico's product swelled, independent agave farmers, angered that the prices distillers paid for their product (about 9 cents per kilo) failed to cover their costs, began pulling land out of production. All told, the industry lost more than 10,000 acres of agave between 1996 and 1999.

As a result, agave prices jumped to about 80 cents per kilo in 1999. By the end of 2000, some distillers paid as much as $5 a kilo. A number of independent growers now employ guards to patrol their precious crop.

For aficionados and hard-core alcoholics in the United States, the increase isn't readily noticeable. Bottles of Sauza's cheapest premium tequila jumped about $6 over the past year. But most bars pushed prices up only about 50 cents a serving. "We didn't raise prices every time it went up," says Victor Moreno, manager at Ciudad. "We absorbed the cost for a while and then raised prices when it became noticeable." The people hurt by all of this, the disasters and the protests, are owners of small distilleries. According to Associated Press reports, almost 30 of Mexico's 70 registered tequila distilleries have shut down in recent years. "The big brands with capital behind them can afford to absorb the increase," explains Luis Dorres, manager at El Agave.

But for how long? The Regional Tequila Chamber expects the shortage to ease up by sometime next year, but others believe the shortage will drag on for perhaps 10 years; it takes that long for a plant to mature enough to yield a palatable liquid.

Despite its recent popularity, tequila accounts for only 5 percent of all liquor sold in the United States, and premiums make up a mere 10 percent of Mexico's tequila exports. Should prices continue to increase over a lengthy period, fickle U.S. consumers may shift to some other overly complicated alcohol. Cognac, for example. "Every problem has an opportunity attached," says David Meyers, president and CEO of Remy Amerique, the American branch of Remy Martin. "We view the opportunity as one where millions of Americans who enjoy premium tequila now face a market where tequila costs approach or surpass cognac. So it's an opportunity for us." A few people, including LaPrelle, suggest that tequila prices won't fall, even when the agave shortage eases. "The producers have found what the market will bear," he says.

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Dave Faries
Contact: Dave Faries