Tequila crisis hard to swallow

Yes, a temporary shortage of the blue agave, the gigantic lily from which the liquor is made, forced a few small distilleries to close their doors. And the perception of a crisis allowed big producers, which appear to have enough agave to weather the tequila tempest, to raise their prices 20 percent or more. One Manhattan bartender even invented a substitute called the "rum-a-rita."

But is there a tequila crisis of glass-shattering proportions?

"There is no crisis," said Jose Luis Sanchez, vice president of the National Chamber of the Tequila Industry in Mexico. "There is no such thing as this alleged crisis."

It is true, however, that trouble has been brewing in and around Tequila, the town in central Mexico that makes millions of gallons of the drink that made it famous. Indisputably, large forces are at work: the cycles of nature, the laws of supply and demand, the thirst for margaritas. But for the increasing number of people in the United States who sip premium tequila or swill agave-scented slush, the glass may be half full, not half empty.

Making tequila – a drink as Mexican as Champagne is French – has been a rough-and-tumble business since the days of the conquistadors. The Aztecs figured out how to make a brew called pulque out of agave more than 1,000 years ago. The Spaniards refined the process. But no one ever smoothed over the eternal enmity between the farmers who grow agave and the businessmen who distill tequila.

"The growers and distillers of tequila are historical enemies," said Robert Denton, an American tequila importer. Their warring has led to the present state of affairs.

Eight years ago, there was a glut of agave. The big producers pressured farmers to sell below market prices, for less than 4 cents a pound, driving some out of business or into other crops.

Agave takes at least eight years to mature. Today, there are roughly half as many agave plants in the ground as there were a few years ago. Fungus and freezes, as well as greed, have taken their toll.

And in those past eight years, tequila's popularity exploded in the United States. Like single-malt whisky and specialty bourbon, premium tequila, made from 100 percent blue agave, is handmade, with subtle variations, a rich history and a complex taste. And like those other spirits, it began to command staggering prices in the 1990s: $100 – or more – for an artfully made bottle. Jose Cuervo recently introduced 1800 Coleccion at $1,000 a bottle.

Fueled by that trendiness, the booming stock market and the eased trade rules of NAFTA, production and export of the top-end premiums more than quadrupled from 1995 to 1999. The more popular brands of tequila, which are as little as 51 percent agave and used for mixing margaritas, also took off, with production and export increasing roughly 40 percent. Industry statistics vary, and are sometimes suspect. But figures from Mexico's Tequila Regulatory Council, formed in 1994 to oversee production and quality, show a 48 percent increase in tequila drinking north of the Rio Grande since 1995.

With less agave growing and more tequila flowing, it doesn't require a doctorate in economics to understand the consequences: prices are up 20 percent or more for the popular brands, and demand threatens to overtake supply.

"It was a while in coming, and it couldn't have happened without the stupidity of the tequila manufacturers and the not-so-watchful gaze of the Mexican government," said Agustin Barrio Gomez, who is trying to sell his small premium distillery, Suave Patria, to avoid going broke. The Mexican government did not intervene, as Washington might have, to provide price supports or bailouts for farmers.

But despite the temporary agave shortage, the major tequila producers, who control more than half the global market, do not seem to be running dry.

"For the big boys, there isn't really a crisis," said Alan Dikty, an expert on spirits and an editor at Tastings.com, the Web site of the Beverage Testing Institute in Chicago, which conducts consumer reviews. "All the large distillers either own their own fields or have contracts lined up with growers. They're covered."

But for the smaller ones, who buy agave from independent plantation owners, "there is a crisis," he said. "There is going to be a winnowing out."

Today, Mexico has 72 tequila distilleries, double the number five years ago. But a dozen or more of the smaller new ones have closed or seem likely to soon because they can't compete with companies that have bigger reserves and more buying power. The smaller distillers have to buy agave on the open market, where prices shot above 60 cents a pound this summer.

Foreigners have a big stake in the most famous names in tequila. Allied Domecq, the British company that also controls Dunkin' Donuts and Baskin-Robbins, owns Tequila Sauza, the second-largest brand. Diageo, the British conglomerate that owns Burger King and Guinness, controls 45 percent of Jose Cuervo, the largest-selling tequila. American, Canadian and French companies like Brown-Forman, Seagram and Remy Martin are also in the global cantina.

Last month, the government brokered a deal between the distillers and the growers. They agreed to set the price of agave at 45 cents a pound, to try to bring the supplies of agave back up, and to try to bring the price of tequila back down.

The deal was too late to save Mr. Barrio Gomez's distillery, and he fears it might have come too late to maintain tequila's soaring popularity abroad.

"It's a shame," he said. "Tequila was the fastest-growing product in the spirits market." But the "greed and poor coordination" of big tequila companies "broke the market momentum," he said. "Once you kill the fad, it's hard to regain."

But the thirst for tequila remains, though the price may stay high – for a while. In the town of Tequila, "they're overplanting now," Mr. Denton said, with a sigh born of two decades in the business. "So, six or eight years from now, there'll be a glut again."