Tequila's Happy Hour

By Sandy M. Fernandez

Did you spend last December stockpiling Champagne? Sucker. Instead of getting ready for a bubbly crisis that never came, you should have been stashing away the harder stuff, tequila. Since last year, farmers in and around the tequila-producing Mexican state of Jalisco have been facing shortages of agave, the spiky-leafed member of the lily family from which the spirit is distilled. Agave's price has leaped from about $40 a ton a year ago to a high of $560 a ton last December. If the shortage continues--and the agave plant's grandfatherly maturation time of eight to 12 years almost guarantees it will--Mexico's leading liquor export, which brought in $296 million in 1998, is sure to get a lot more expensive.

Weber blue agave, the only species authorized for tequila making, has suffered from a 1997 freeze and a recent spate of crop diseases. Even so, these are heady days for the tequila industry. Since 1995, drinkers the world over have turned tequila into a best seller. Global consumption has doubled, making Mexico's national drink the fastest-growing liquor category in the world--another reason for the agave shortage. A major factor in the beverage's popularity has been the burgeoning demand for premium and superpremium tequilas, like La Altena distillery's El Tesoro, or La Gonzalena's Chinaco, made of 100% blue agave. These use nearly twice the fermented agave juice necessary to mix cheaper brands. "What is happening today is a product of what happened in 1991 and 1992," says Javier Arroyo Chavez, president of Mexico's Tequila Regulatory Commission. "No one then ever imagined that the tequila industry would go on to its present success."

Before the boom, when the current agave crop was being planted, the international market for tequila was decidedly downscale. "People knew tequila as what they drank in college to get drunk," says Alex Alejandro, co-owner of New York City's oldest Mexican restaurant, El Parador. The restaurant has stocked premium tequilas for all its 40 years, but it hasn't always found a ready buyer. "Ten years ago, the average consumer wasn't willing to pay more than about $4 a shot," says Alejandro.

Today drinkers at trendy bars from Manhattan to Mayfair pay as much as $40 for a tall shot, or caballito, of Porfidio Barrique, and buyers snap up Herradura's $230-a-bottle Seleccion Suprema. Even mass-market leader Jose Cuervo now offers a $1,000 bottle of limited edition 1800 Coleccion. It's all part of the trend toward boutique liquors that began in Europe and the U.S. in the late 1980s, says Chris Morris, national marketing director for American distiller Brown-Forman's two tequila brands, Pepe Lopez and the newly introduced Don Eduardo. "When single-malt whiskeys burst onto the market, we saw consumers become fascinated with niche products," says Morris. "People were willing to pay $25 or $30 a bottle if you gave them a good product or a reason to try it." Soon it was tequila's turn, both straight and in America's reigning cocktail, the margarita. "When I opened, customers just wanted to down their tequila in one go," says Fernando Martinez, who started the Going Loco bar in London in mid-1998. "Now many regular customers experiment and taste different tequilas just like a whiskey connoisseur would."

The boom encouraged smaller distilleries and exporters to the U.S., which consumes 80% of Mexico's tequila shipments abroad. "A few people who regularly went to Mexico for these small specialty tequilas started importing them for sale," says Christopher Palmer, publisher of the online magazine Tequila Fancy. International customers were soon savoring formerly inaccessible brands like Centinela, Lapiz and Gran Centenario. A string of new multinational players in the market also helped. Over the past five years, giants like Brown-Forman and Seagram (Tequila Don Julio) and powerhouses Diageo (Cuervo's distributor) and Allied Domecq (Sauza's) have bought tequila distilleries in Mexico or gone into partnerships there in order to create new products. Tequila's cachet has also attracted such smaller spiritmakers as Pernod Ricard, which bought Mexico's boutique Tequila Viuda de Romero in January.

Another push for tequila consumption came in 1997 from the World Trade Organization and the European Union. Since 1974, the Mexican government had kept tight control over the production and labeling of the liquor: only tequila made from at least 51% Weber blue agave grown in Jalisco state or five designated neighboring areas could bear the generic tequila name. The WTO and the E.U. concurred, making tequila--like Champagne, Cognac and sherry--one of the world's few geographically defined liquors. Suddenly dozens of brands produced in other Mexican states, the U.S. and Spain had to be relabeled, focusing the tequila demand on Jalisco.

The scarcity of Weber blue agave in Jalisco has meant that some distilleries have quietly augmented their supply with cheaper agave from the southern state of Oaxaca--outside the officially designated zone. Sales of Oaxacan agave to Jalisco have roughly doubled in the past year. Mexican regulators are trying to crack down on the rogue suppliers and buyers and have closed at least one distillery. The smuggling also threatens production of tequila's less tony cousin, mescal, made with unauthorized agave species or Weber blue grown outside the designated zone, by driving up Oaxacan agave prices 40%.

Despite the agave crunch, tequila's popularity is likely to endure--another reason those caballitos are going to cost more. Elliot Lane, deputy editor of Drinks International Bulletin, a London liquor newsletter, expects prices to rise 30% to 60% in the next six months. So forget buying limes and salt--you'll be needing every penny for tequila.

--Reported by Vietnika Batres/Mexico City, Mairi Brahim/London and Ronald Buchanan/Jalisco

With reporting by Vietnika Batres/Mexico City, Mairi Brahim/London and Ronald Buchanan/Jalisco