Mounting global demand worries Tequila producers

In the heartland of the tequila industry , in Mexico’s western state of Jalisco , a worsening shortage of agave and soaring agave prices caused by mounting demand for the liquor from New York to Tokyo has many producers worried.

As it sheds its image as a fiery booze drunk by desperados and fratboys, while moving into the ranks of top-shelf liquors , the tequila industry has seen a flurry of deals in recent years.

In January, Bacardi Limited said it would buy fine tequila maker Patrón Spirits International for USD$5.1 billion .

In 2017, after years of speculation, Mexico’s Beckmann family launched an initial public offering of José Cuervo, raising more than USD$900 million.

And Britain’s Diageo Plc swapped its Bushmills Irish whiskey label for full ownership of the high-end Don Julio tequila in 2014 .

The question posed by many distillers is how to keep pace with tequila’s success .

“ The growth has overtaken us. It’s a crisis of success of the industry ,” said Francisco Soltero , Director of Strategic Planning at Patrón , which buys agave under various contracts.

“We thought that we were going to grow a certain amount, and we’re growing double,” he said.

Large sellers such as Patrón and Tequila Sauza say they have not experienced problems paying for agave, and forecast that their inventories will keep growing.

“If you sell value, the costs don’t worry you,” Soltero said.

Tequila Sauza

, which mostly grows its own agave, does not foresee supply problems, Chief Executive Servando Calderón said.

But some think it is simply a matter of time before the higher production costs and scarcity pressures bigger players.

“We are sure this will have a strong impact on the big firms such as Cuervo or Sauza ,” said Raul García , President of the National Committee for Agave Production in Tequila , a group that includes most agave producers in the country.

“We don’t see that the problem will be resolved soon, and that’s what worries us.”

Demand is also being driven by other, fashionable agave-derived products , including agave syrup and health supplement inulin , which use the equivalent of 20% of the plants needed in 2018, the Tequila Regulatory Council ( CRT ) said.

And rising prices are leading to growing theft , driving out smaller producers, said José de Jesús, a producer of blue agave in Tepatitlán . Criminals come to the area with large trucks in the middle of the night to steal agave, he said.

According to the CRT last year 15,000 plants were reported stolen, more than triple the number in 2016 .

sg