Farmers rushed to plant agave, now can't sell it

AHUALULCO, Mexico — Tequila could be the ruin of Fernando Chavarin.

The sugar-cane farmer has invested $18,000 to grow agave, the spiky plant and raw material for Mexico's national liquor. He couldn't resist jumping in. Agave prices had soared because planting had not kept up with the global thirst for tequila.

Unfortunately for Chavarin, thousands of other farmers, and even lawyers and doctors from urban Guadalajara, had the same idea. As the crops planted in 2000 and 2001 reach their cycle for harvest, the market is drowning in agave.

The oversupply has caused prices to tumble to less than $4 per typical 90-pound plant, from a peak of $70. Agave farmers are going bankrupt, and even burning their crops in despair. Some farmers have blockaded tequila distilleries, begging them to buy their plants before they rot away in the rugged fields of Jalisco state.

"We all thought we were going to be rich," said Chavarin, 51. "But we can't scold anyone. We have the blame for planting it. If we lose it, we lose it. I'm not going to cry."

The debacle has seen agave farmers and tequila producers try to rein in the roller-coaster cycle of planting that is a response to wild swings in price. The Mexican government now requires agave farmers to register their planting, and the tequila industry is monitoring crops with satellite photography.

As the government weighs strategies to solve the crisis, tequila producers fear that the market will overcompensate and that too few agave farmers will plant crops this year.

That could cause an agave shortage years from now, and put the brakes on a tequila industry that generates more than $300 million in annual exports.

Mexico confines agave production to parts of five states if it will be used for official tequila. Further confirming the crop's status as a national icon, UNESCO designated Mexico's agave fields and tequila facilities as a World Heritage Site last year.

From mom-and-pop operations to behemoth Jose Cuervo, tequila makers have watched their product skyrocket in popularity. Thanks to a growing Hispanic population and hip tequila bars, exports to the U.S. in 2006 topped 28 million gallons, a 21 percent increase from 2005.

Farmers, however, didn't see agave as a cash crop in the early 1990s and planted very little. That prompted a shortage in 2000, causing prices to skyrocket to from 5 cents to 64 cents a pound. The crop peaked in 2003 at about 77 cents, according to industry data.

Even engineers and doctors from Guadalajara, Mexico's second-largest city, bought agave plots as investments.

The National Chamber of the Tequila Industry estimates that agave farmers planted a total of about 300 million plants from 2000 to 2003, nearly four times what the industry typically requires. With a harvest cycle of about seven years, the first crops are now ready.

Chavarin, the sugar-cane farmer, is a case study of the pitfalls facing inexperienced agave growers. He has sold only 50 tons of the 450 tons of agave he has harvested this year. He has until November to sell the rest before it goes bad.

The agave growers' union has responded by blockading distilleries to pressure them to buy excess agave.

Enrique Mendez, an executive with one of the national agave-farmer unions, said he is bitter that the tequila industry is playing hardball. In some cases, tequila makers are approaching desperate farmers and buying their crop at less than 2 cents per pound, half the already-low official rate, he said.

"For those prices, we can't even buy a pair of pants to harvest our crops," he said.

Arnulfo del Toro, a top official with the national agriculture department in Jalisco, said government officials have approved $12 million to bail out agave farmers. But officials have not yet determined how to spend that money. Alternate uses for the agave sugar are being studied, including a honey that can be safely eaten by diabetics.

Officials also are weighing a subsidy of agave prices. As the government drags its feet, many farmers are facing ruin, said Mendez of the agave union. He said the proposed remedies don't go far enough.

"It's like taking an aspirin for a cancer," he said.

Meanwhile, corn production in Jalisco is up an estimated 15 percent this year, a response to another boom — high corn prices fueled by its use in ethanol. Del Toro worries that some agave farmers might switch to corn permanently.

The fear is that in a few years there will be an agave shortage that will rein in an industry set to explode.

Company executive Marco Antonio Jauregui said one would assume that he would be gleeful at the low agave prices, but he shares the fears that his key suppliers will dry up out of frustration.

"We aren't pleased that there is this much agave in the ground," he said. "Yes, it helps us in the short term, but the tequila makers, we could end up losing. The agave farmers and the tequila makers, we need each other."