While mezcal continues to surge in popularity in the United States, agave pricing and supply issues in Mexico are poised to make a deep impact on this burgeoning spirits category. Mezcal holds just a tiny slice of the overall spirits pie, but it’s posting consistent gains, thanks largely to bartenders who are offering it in mixed drinks and as a standalone sipping spirit. The on-premise dominates mezcal’s U.S. sales, which have grown more quickly than many suppliers anticipated over the last few years. This, in turn, has led to a surge in agave pricing and potential supply issues as established labels increase production and new entrants flood the market.
Mezcal can be made in several Mexican states, but the vast majority of it comes from Oaxaca and is made using the Espadín agave variety. Pricing of Espadín agave was as low as 1 peso a kilogram in 2012 (about 7 cents in 2012 dollars) and about 3 pesos a kilogram in 2014. It rose to 6 pesos a kilogram in 2016, and this year producers are paying as much as 11-12 pesos (about 60 cents in 2018 dollars) a kilogram. By comparison, Blue Weber agave, the type used in making Tequila, is more than 20 pesos a kilogram.
“I don’t think prices for Espadín agave will go that high, but I wouldn’t be surprised to see it at 15-16 pesos a kilogram this year,” says John Rexer, the founder of Ilegal mezcal. Bacardi bought a minority stake in Ilegal last year and helped the brand expand to nationwide distribution, led by its Joven expression ($47 a 750-ml.). “The cultivated Espadín supply is tight in Oaxaca and I believe that will continue through 2021 or 2022,” Rexer says. “But Oaxaca is big, and there are many growers. Some brands will have ample supply, while others will suffer a squeeze.”
Rexer adds that sharp price increases can be seen as a healthy growing pain for mezcal as the spirit establishes itself outside Mexico. He notes that the increased value in cultivating agave will provide economic incentive for new growers, which will ultimately set up the category for ample supply in the future.
Danny Mena, a founding partner of Mezcales de Leyenda, imported by M.S. Walker, believes that the Espadín agave supply in Oaxaca is reaching equilibrium with demand. He says that in other mezcal-producing Mexican states like Durango and Guerrero, agave pricing has only increased 10% over the last five years, while in Oaxaca the price has nearly quadrupled over the same period. Mena also notes the Espadín price surge hasn’t had a serious impact on Mezcales de Leyenda because it sources a diverse selection of agaves from throughout Mexico (the Oaxaca bottling is $65 a 750-ml.). But for sister brand Pelotón de la Muerte mezcal ($30), which is made from 100% Espadín, the agave price surge has been painful. So far the brand owners are absorbing the agave price hike, but they fear they may have to raise the consumer retail price soon.
“Unfortunately, we’re in a very price-sensitive area of the market, so we have very little wiggle room,” says Mena. He adds that producers have to take a long-term outlook when it comes to agave supply. “Agave takes seven to nine years to reach maturity,” Mena says. “As agave prices rise, people plant. But they’re investing in a crop that doesn’t yield any money for almost a decade. As supply blooms, pricing drops. And when pricing drops too much, farmers plant other crops that can yield income in six months, so supply becomes an issue again in seven years. Then the price increases again and people plant again. It’s a cycle we see a lot in Tequila—and one I expect to see in Oaxaca for Espadín agave.”
Ilegal’s Rexer adds that the current agave shortage can be traced, in part, back to the 2007 ethanol boom, during which many growers planted corn instead of agave. The reduction in agave plantings in 2007 and 2008 is being felt today. And compounding the mezcal agave supply shortage is the rise in popularity of non-alcoholic agave syrup. Ironically, the agave required to produce the sweetener, which is often mixed into mezcal cocktails in the on-premise, is causing problems for mezcal producers.
Some brands mitigate supply issues by signing long-term contracts with agave growers, thereby creating some stability for their products. Sombra mezcal, owned by Davos Brands, is a prime example. Davos vice president of marketing Joen Choe says 2018 is shaping up to be a challenging year for agave supply, but he adds that established brands should have a solid supply chain that can withstand this type of pressure. In addition, Sombra mezcal owns and operates its own distillery in Mexico, giving it further control over the production process and overall costs (Sombra Mezcal Joven is $35 a 750-ml.).
“We’ve been sourcing agave and working directly with farmers for over a decade, and the relationships we’ve forged are priceless,” Choe explains. “We’ve always had a long-term approach to our business, and we source agave in that fashion, with multiple-year contracts. We hear reports of younger agaves being thrown in with the fully mature agaves to boost supply. That creates a vicious cycle, because the younger agaves have less sugar and you need to use more of them, which means there’s even less supply for future harvests. That can’t happen with Sombra, because we own the palenque and inspect every agave that comes through.”
Similarly, Montelobos mezcal, imported by William Grant & Sons, controls the supply of its agave, shielding the brand from pricing and supply pressures. “There are concerns that the agave supply may not be sufficient if the growth of mezcal continues at 40% a year,” says Shem Blum, Montelobos’ brand manager. “There are also serious concerns surrounding the deforestation of wild agave and the long-term impact of exploitation.” Montelobos uses organic cultivated agave, not wild agave (Joven is $40 a 750-ml.).
The use of wild versus farmed agave is a point of contention within the mezcal community. Some brands tout the terroir of their mezcals and emphasize the importance of using wild agave in creating unique spirits. But as category growth continues, wild agave is increasingly hard to find or too expensive to use. Mezcales de Leyenda’s Mena believes true wild agaves will slowly disappear and be replaced by semi-wild agaves that start their lives in a nursery and then get replanted in the wild and left to grow for upwards of 10 years.
Bozal mezcal from 3 Badge Beverage Corp. uses both wild and farmed agave in its range. The Espadín is farmed, while other varieties, including Arroqueño, Sierra Negra, Cincoañero, Sierrudo, and Barril, are propagated and replanted in wild and rural areas (Bozal’s range starts with Ensamble at $50 a 750-ml.). “As Bozal continues to grow, there’s certainly a challenge to the scalability of our small-batch portfolio,” says August Sebastiani, president of 3 Badge Beverage Corp. “We’re committed to sourcing and unearthing hidden gems and bringing consumers the best possible expressions of mezcal. The nature of mezcal is to bring a diverse range of agaves from a variety of different palenques to consumers. That’s how we approach potential supply challenges. And we encourage wild agave replantings, providing resources and funding for our mezcal partners and palenque maestros.”
Sustainability is a big part of the process for many brands. Bozal enforces a replanting initiative dictating that for every one wild agave harvested, two are planted in a mountainside nursery and transported to the wild after one to two years. Del Maguey Single Village mezcal ($37 a 750-ml. for the popular Vida expression), which was acquired by Pernod Ricard last year, also puts a big emphasis on environmental responsibility. The brand—which bottles over 20 mezcals that highlight different agave varietals—takes part in reforestation efforts and is committed to biodiversity in Mexico.
“For over 20 years, Del Maguey has maintained a deep commitment to the amazing and rich cultural heritage of Oaxaca,” says Michael Gardner, global business leader for the brand. “The agricultural environment in Oaxaca is getting tighter as the mezcal space grows and becomes populated with new entrants. Environmental consciousness and social responsibility are the central tenets that anchor our impact philosophy. From well-planned agave cultivation strategies to reforestation projects that address ecosystems and wild agave, our environmental mission focuses on leaving a positive, impactful footprint in the Oaxaca region.”
Since the mezcal category is still very young, many of its primary players hope producers and new entrants take a mindful approach to building it. Along with the United States, mezcal is growing in Japan, Australia, and much of Europe. Ilegal mezcal’s Rexer says that once-barren landscapes in Oaxaca are now dotted with young agave plants and many Mexican communities are investing in their land and palenques, creating new opportunities for work. “As mezcal grows, all of us who work in the category have an opportunity and an obligation to try and do this right from the beginning,” Rexer adds.