Friday, December 12, 2014
2015 Shortage of Agave by Brady Bunte
2015 Shortage of Agave by Brady Bunte
It is not good news for tequila lovers as industry projections indicate a sharp increase in the cost of production of the much beloved Mexican beverage over the next few years. Brady Bunte, a tequila expert and maker, expects this increase in production costs to mainly affect small and medium sized manufacturers.
Tequila’s main raw material is the agave plant that is predominantly grown in the area surrounding the city of Tequila, and the Jalisco State in Mexico. It is as a result of expected shortfalls in the harvesting of this plant that will cause problems for smaller manufacturers. Brady Bunte does not expect large manufacturers to be adversely affected as they usually enter into contracts with growers that guarantee them harvests over predetermined periods at set rates.
According to Brady Bunte, industry experts have predicted that the price of agave will more than double within the next 4 years. Large distilleries that rely on this plant will likely have enough supplies of the raw material for their product during this period, at guaranteed prices well below the open market rates. Brady Bunte expects that their easier access to capital will also likely give them the ability to find ways to expand their current operations and make production more efficient, without it drastically affecting retail prices. The agave plant takes about 7-10 years to mature, and it is this growth that larger companies invest in, having secured about 80% of the national harvest.
Not much hope is being held out for smaller enterprises that may be unable to cope with these rising costs. Brady Bunte knows that with rising production costs, it can be expected that smaller outfits will need to increase their wholesale and retail prices for clients. This can however mean the death knell for their business as buyers are unlikely to choose their products over more lowly priced brands from large distilleries.
These reports are even more worrying for small and medium sized enterprises as the demand of tequila continues to grow globally. With increased demand as more people try out the drink, Brady Bunte foresees more buyers will opt for the most well known affordable brands.
The shortfall problem that is expected to become more clearly visible in 2015 has been linked to the historical fluctuations in demand for the agave plant. During the 1990s and 2000s, there was a steady increase in the demand of the plant from tequila manufacturers. At some point in the mid 2000s however, growers overestimated the expected demand and planted too much crop. The resulting flood of stocks into the market during the early 2010s caused agave prices to dip, and many growers to cut back drastically on their production.
With fewer agave plants expected to mature during the 2015-2018 period, small and medium sized manufacturers are expected to start scrambling for raw materials. 2015 is expected to mark the beginning of steep price increases in the value of agave, with supply unlikely to match demand. After consultation with other industry experts, Brady Bunte anticipates the supply to be roughly 40% less than what was on offer in 2013.
A growing export market, in which China has only recently joined, means that most tequila distilleries will be operating at full capacity. With smaller distilleries likely to suffer the most as from 2015, Brady Bunte expects that larger distilleries may acquire their operations to expand their own output.
Brady Bunte does however note that with agave plant growers eyeing higher prices, even larger distilleries may be forced to increase their retail prices marginally to continue earning the goodwill of suppliers, while remaining profitable. This means that buyers should expect the price of tequila to go up somewhat, even with larger brands.
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