The price of downing a tequila shot is about to go up.
Blame this looming crisis on a fundamental economic principle: supply and demand.
Tequila distillers just can’t get their hands on enough agave plants to keep up with booming worldwide demand for the clear spirit. Long a favorite in North and Central America, tequila is attracting fans around the world. Sales were up 5% in the UK in 2016, for example. In January, Bacardi, best known for its rum, acquired high-end tequila maker Patron for $5.1 billion.
According to tequila industry experts, 42 million agave plants would be needed to fully supply tequila makers for 2018. Agave takes about seven years to reach maturity. Unfortunately, only 17.7 million of the agave plants planted in 2011 are ready for harvest.
This shortage has sent the price of agave skyrocketing from 21 cents a kilo in 2016 to a current price of $1.18. This situation is expected to last for many, many (un)happy hours – until at least 2021.
Because of the current shortage, farmers have been harvesting agave crops as early as four years into their growth. Those immature plants produce low-quality tequila. The shortage has also made agave a juicy target or thieves.
The tequila industry worries that the higher prices it must charge because of the agave shortage will drive people to other spirits, such as vodka, whiskey, and gin. That may or may not happen – Americans are probably willing to pay a bit more for their beloved margaritas. But the agave shortage might well reduce the available varieties of tequila. Small distilleries are already finding it difficult to compete with larger operations for agave.
With no relief in sight, brace yourself for an expensive Cinco de Mayo.
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