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With high agave prices, tequila producers worry about a shortage

Austinites might want to stock up now on one of our favorite things — tequila — as worries continue to ripple through the industry that producers in Mexico might not have enough of the key ingredient in the spirit to keep up with demand.

Tequila is no longer the cheap liquor shot bars would offer with a lime wedge and a ring of salt. With many brands now regarded as premium products, it has become one of the most sought-after spirits both worldwide and in the U.S., where sales have increased 121 percent since 2002, according to the Distilled Spirits Council of the U.S.

But that success has a dark side. Blue agave — the spiky Mexican plant from which tequila is distilled — isn’t on the same yearly growth cycle as the grains and grapes that make whiskey and wine. The hardy plant matures over the course of seven to eight years, at which point it’s harvested for the sugar-rich center, the piña. With such a long growing time to account for, farmers have to plan out their crop yields far in advance, anticipating the demands of a fickle market.

In 2011, farmers planted almost 18 million blue agaves for use this year, according to the Reuters article that broke the news in late January of the shortage. That amount falls well below the 42 million agave plants needed to supply today’s 140 registered companies.

Now the cost of blue agave has skyrocketed to an all-time high, squeezing the profits of smaller distillers and sparking concerns that even the bigger companies will feel the pinch. Though agave cost as little “as one peso per kilo in 2009, now it’s 22 pesos per kilo ($1.18). That’s a considerable jump in price,” Eric Dopkins, CEO of the Austin-based brand Dulce Vida Tequila, said.

And despite warnings in 2012 and 2013 about an agave shortage, “there was not enough planning done over the past few years to account for it,” Dopkins said.

“We should have planned it out better. You can Google articles from 2012, 2013, and it happened like clockwork,” he said. “The question is how long it will last. It’s lasting longer than it did during the previous experience, and I think it’ll take more of a toll than people were expecting.”

He’s referring to a prior agave shortage that happened as far back as 2000, when he worked at the multinational beverage company Diageo — the owner of many well-known brands including Don Julio Tequila. With 25 years’ experience working in the industry, Dopkins has a pretty farsighted view of the agave crisis. He knows, for instance, that how it concludes will depend in part upon consumers’ purchasing practices.

Soon enough, we might start seeing higher prices on our favorite tequila brands in the liquor store, with some price points going up as much as 10 to 15 percent. And if we respond by buying less, the industry might have a chance to recover, bringing down agave costs.

Dopkins, also the previous CEO for Deep Eddy Vodka, purchased Dulce Vida in 2016 through the beverage development company that he started with Deep Eddy co-founder Chad Auler, Milestone Brands. They have no plans to raise the price of Dulce Vida’s array of tequila expressions over the course of the next year even though the company is taking “a seven-figure hit,” Dopkins said.

“We’re just going to take the hit and hope the price of agave goes down,” he said.

Dulce Vida produced almost 40,000 cases of tequila last year, and Dopkins anticipates a roughly 50 percent increase in product this year. It’s the fastest-growing tequila brand in the country, according to Nielsen data.

RELATED: Dulce Vida Tequila adds line of flavored tequilas in rebranding move

Still, Dulce Vida is a relatively small company compared to juggernauts like Sauza or Jose Cuervo, and it’s those giants that industry insiders like Dopkins anticipate will be the most affected by the agave shortage and price hike. The Reuters story noted those firms haven’t yet had problems paying for agave or meeting their demand, but Dopkins said dozens of brands are likely going to raise their prices in the next few months.

Another Austin-based tequila brand, similarly small, is also resolute about not raising the price of its products. Tequila 512 has “no plans to raise prices at this point and will do everything we can to keep it that way,” owner Scott Willis said in an email.

He gets his tequila from La Cofradia, a family-run operation. He frequently travels to Mexico — to the state of Jalisco, the main site of tequila production — to check on the tequila and on the large, conelike piñas that are roasted and milled to produce the agave juice that becomes tequila.

Dulce Vida takes similar measures to make sure its tequila derives from fully matured agave plants. It’s a step that has proved necessary of late, Dopkins said, because both farmers and distillers are so desperate to guarantee supply that some have been harvesting agave early, before it’s fully ready. The unripe plants yield less tequila, creating a cascading problem that will guarantee less agaves for use in a few years.

So the agave shortage is likely to last until 2021, according the Reuters article. But will we actually see a tequila shortage as well?

“We don’t expect it to get apocalyptic, but you never know,” Dopkins said. If demand doesn’t lessen, “we could see longer-term issues until more piñas are harvested. There has been a lot more planting of agave in Jalisco, which will eventually meet the demand and bring down some of those prices. Eventually.”

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