Agave Industry Prices
For most spirit aficionados around the world, agave reminds them of one thing: tequila. And that connection has only been exacerbated by the past decade’s rise of the global tequila industry. As celebrity-made and artisanal brands become more popular, the culture of tequila has spread far and wide beyond Mexico and North America.
Also, high-quality tequila brands aren’t the only thing that’s been fueling the growth of the agave industry. You may have heard of agave nectars being used in baking goods — or you’ve tried the less popular, and more complex taste of a smoky mezcal.
However, things have not always been rosy for the agave industry — and its cycles of growth and contraction can have complex effects on tequila labels and their customers. With that in mind, we’ll use this post to examine the basics of the agave industry, and how its prices are affecting tequila suppliers around the world.
What Is Agave?
Agaves are prickly desert plants that originated in Mexico. They grow slowly — it takes years for an agave plant to store enough sap in its core to finally bloom a single flower stalk before death.
Agave juices are usually fermented for the production of spirits or processed into nectar. The nectar is also sold as an alternative sweetener — mostly gaining popularity as a vegan replacement for honey because it has a pretty similar glucose and fructose ratio. While it’s not much healthier than corn syrup, experts argue that the agave nectar market will likely grow for the foreseeable future.
Speaking of which — considering this harvesting process, what does the agave market generally behave like?
Agave Market Cycles
One of the main challenges faced by the tequila industry has always been securing a steady influx of agave for production.
Historically, tequila suppliers have gone through cycles of shortage and abundance. This is the result of the agave growers’ lack of information on market demand and the naturally lengthy life cycle of the agave plant.
As we’ve mentioned above, agave plants require years to mature. Despite this, agave growers often plant them in abundance when the prices are currently high — without knowing how the market will look in 6-7 years when the agave will actually be ready for harvest.
So, growers tend to overplant if the agave prices were high at the time of planting. Ironically, this abundance of agave only ends up driving the prices down for everyone. The result is the opposite of what they wanted — and it drives the market loop in the opposite way.
The low prices that are the result of overplanting lead farmers to under-planting their next batch of crops — which, in turn, leads to higher prices when the plants mature.
This alternating cycle of shortage and abundance happens each 10 — 15 years. And it causes a rippling effect in the tequila industry, creating supply chain issues in an industry that has a constant demand for millions of agave plants for tequila production.
Such market disturbances can be damaging for the farmers as well — a particularly harsh cycle in 2007 saw the number of agave growers reduced by half compared to their 2000 numbers.
The Current State Of The Market
Considering all of the above — how has the market behaved lately?
To put things in perspective, the prices of agave in years of abundance can be around 2 pesos per kilo. On the other hand, in times of high demand and few harvest-ready plants available on the market, prices go up to 25 pesos/kilo.
Right now, we’re just coming out of a particularly rough period. In the past seven years, plenty of brands even ceased production until prices came back down, or started relying on more affordable, but lower-quality diffuser-made juice.
In 2016, agave prices were expensive, but reasonably so — at around 10 pesos/kilo. However, the truly hurtful spike happened a year later — when the prices crossed the 20 pesos/kilo threshold in the middle of 2017.
By the start of the COVID-19 pandemic, prices reached their tipping point at around 30 pesos/kilo.
However, the prices have gone down slightly by 2022, and industry experts are now expecting a steady fall in agave prices. By 2023, the prices are expected to fall down to their 2006-2010 range.
The reason for that is simple: the lifecycle of the agave plant we’ve explained above.
The prices last started rising dramatically 6-7 years ago. That means that the farmers who were planting their new agave crops in 2017 or 2018 were expecting high prices — which probably led them to overplant.
As a result, we’ll have an overabundance of agave supply in the next couple of years. This will, in turn, likely drive the prices back down.
That is why, at Agave Spirits, we encourage new brand projects to position now.
As long as agave prices are high, the competition of brands offering new products is still competitive; when production prices decrease, the new brands entering the market will also be competitive.
There is currently an opportunity to satisfy consumer demand, even if profitability is affected.
That is why at Aceves, we seek to create products for existing market opportunities and avoid being just another brand competing in the market.
Tell us more about your idea and how we can make it special.