Wracked by a shortage of agave and the threat of overpricing, Tequila's woes are mounting despite continued sales. But as Ian Wisniewski reports, adversity might finally unlock the category's potential.

Every year Tequila promises to hit the "big time", but never quite does, even though production has risen dramatically, from 7.5m nine-litre cases in 1989, to around 21m nine-litre cases in 1999. However, production levels are being seriously compromised by an agave crisis, as a shortfall of forward planting is intensified by the impact of two deadly infections.

As agave plants require 8 to 10 years to reach maturity, demand for Tequila must be estimated at least 8 to 10 years in advance, and the necessary stock safeguarded. Tequila can only be distilled from blue agave cultivated in a Denomination of Origin zone: the State of Jalisco, and certain municipalities in the States of Guanajuato, Michoacan, Nayarit and Tamaulipas.

The problems of estimating sales are compounded because Tequila has frequently experienced periods of rapid sales growth, accompanied by extra agave plantings, then followed by declining sales periods when less agave was planted, prior to another upswing in sales. Subsequently, a cycle of over/undersupply of agave has been a constant feature of the industry.

The current undersupply has been intensified by two infections that emerged in 1992-1993 (and compounded by severe snow in 1997, which destroyed numerous young plants). Fusarium, a fungus, feeds on the plant's roots and dries up the sap.

"Bulk Tequila has not only gone up by around 550% over the past year, but supplies have virtually dried up."

Its vicious team-mate, erwinia, is a bacterial infection carried by the picudo del agave insect, which burrows into the pencas (leaves), laying eggs that develop into larvae and feed on the plant. Not only are plants vulnerable at either end, but neither condition is detectable until after a plant has been infected for around five years. By then its too late, and the plants are redundant.

Moreover, there is no guaranteed cure, despite on-going research since 1995. Spraying with preventative chemicals only helps up to a point, although the best news is that a method of inoculating young agave, prior to planting, is being developed. Hopefully this will at least safeguard the next generation.

Meanwhile, the estimated extent of infected plants varies, the most optimistic being around 2% of the total, and the most pessimistic up to 30%.

Estimates of the amount of agave available present depressing reading for Tequila producers. There will be a dramatic drop from 780,000 tonnes in 1999 to 630,000 tonnes this year, with 360,000 tonnes projected in 2001 and 270,000 in 2002. Agave has already rocketed from $0.08 to its current price of $1.40 per kilo.

The Consejo Regulador del Tequila (Tequila Regulatory Council), which regulates and verifies production methods, is working closely with farmers, distillers and scientists to stabilise the situation. Initiatives include developing more disease resistant plants and a major replanting programme. Some observers have expressed concern that these plantings will come on tap just as another oversupply situation begins.

Distilleries owning agave fields have generally fared better than those relying on contracts with independent farmers. Nevertheless, hiring security guards to patrol fields has become a necessary precaution, with an estimated 70 tonnes of agave stolen so far from fields (you don't need to take many to make it worthwhile, as a single plant weighs 60-100kg).

To help independent farmers, a recent regulation requires distilleries to buy a certain percentage of their agave on the open market. However, some farmers contractually obliged to sell agave to distillers at pre-arranged rates, are apparently naming their own prices instead. Desperation also resulted in some distilleries using agave from Oaxaca (outside the Tequila zone, where different agave varieties are cultivated to produce mezcal), with 10 distilleries already caught and briefly shut-down.

The effect on prices is that "bulk Tequila has not only gone up by around 550% over the past year, but supplies have virtually dried up," says Dale Sklar, MD of specialist UK importer Wine & Spirit International Ltd.

"One certainty is that prices will keep rising, at least in the short term, which may see Tequila as a category, price itself out of certain markets."

"Wholesale prices of standard Tequilas have risen by up to 150%, with some 100% agave Tequila brands doubling," adds Dale Sklar. To qualify as 100% agave Tequila, all fermentable sugars must be derived from agave. For standard Tequila a minimum of 51% of fermentable sugars must be derived from agave, with other sugars such as piloncillo (unrefined, crystallised Mexican sugar cane juice) or molasses added during fermentation.

Switching from 100% agave to standard status is one option being taken (extra sugar obviously makes agave go further), which is why production of standard Tequila is up 22% to 12.6m cases, and 100% agave Tequila down by 55% to 2.4m cases, between January-September this year, compared to that period last year. Some brands have also reduced from the usual 40% abv to the new legal minimum of 35% abv (recently lowered from 38% abv in a protectionist move).

But it is already too late for 25 distilleries, which closed in the past 18 months, giving a total of 50 operational distilleries. "Some went out of business because they were tied into long-standing contracts to supply Tequila to other brandowners at prices that bankrupted them," says Dale Sklar. "Others have been acquired by rival Tequileros wanting to get their hands on additional stock."

Multinational interest is also keen. In January, Groupe Pernod Ricard purchased Tequila Viuda de Romero, with juicy rumours about potential acquisitions by other multinationals doing the rounds. And with Seagram's imminent divestment, the industry is waiting with anticipation to see what will happen to the shareholding the company acquired last year in the highly desirable Tequila Don Julio SA.

It's clearly a turbulent phase for the industry, but a happy ending is always possible. "They are getting organised and concentrating on keeping the integrity of the product, and I believe the category will come out of this stronger," says Chris Nadin, brand director, Jose Cuervo UDV Europe.

Meanwhile, wild price variations in the marketplace depend on how clued up distributors/agents are, and how recent their stock is. The one certainty is that prices will keep rising, at least in the short term, which may see Tequila as a category, price itself out of certain markets.

Then again, there's nothing like rarity and expense in a mature market like the US to boost cachet, and what the US does, the rest of the world often follows. And ironically, it could be strife and shortfall that finally helps propel Tequila into the big time.