The below is an article I wrote for a newsletter published by WooNow a Hong Kong bartender’s community group:
Supply and demand is an easy concept to grasp. The more someone wants something, the more they’re willing to pay. If there’s not enough of it to go around, only the highest bidders will be able to get their hands on it. In our world, it seems almost inconceivable that we will ever see a shortage of liquor; The way we sling whiskies and tequilas across that two foot of wood on a daily basis, the faucets might as well run potent spirits instead of water.
But shortages are real.
It has happened before, and it could happen again. In the 1850’s, French vineyards suddenly and inexplicably withered away, destroying hundreds of acres of grapes, and in effect, hundreds of barrels worth of wine and brandy. The exact cause isn’t known for certain, but modern scientists and historians are almost certain it was due to a kind of aphid, phylloxera, that was native to America, but brought over to European soil. Although phylloxera had previously destroyed European breeds of grapes in America before, the aphids could not survive the journey to Europe until the industrial revolution made ships that could travel from coast to coast within their lifespan.
Naturally, with brandy in such short supply, its price reached stratospheric heights. It became affordable only to the rich, leaving little to none to the average drinker. Prior to the price surge, Cognac and Armagnac had been the spirit of choice for many drinks and cocktails such as, most notably, the Sazerac. However, in 1873, in response to the difficulty of obtaining brandy, the official recipe for the sazerac was revised to use rye whiskey, as were many other dark spirit cocktails. As a result, bourbon, rum, and rye, previously only a small portion of the market, suddenly became the spirit of choice, changing the spirit market in a way we still feel today.
As recently as 1990-2003, we experienced another crisis, this time in a shortage of agave, the crop used for producing tequila. In this case, the shortage was due to a combination of reasons; a sudden increase of agave pests due to uncharacteristic weather, a sudden surge in demand in American markets, and poor planning and maintenance on the part of distillers and growers. Unlike grains and grapes, which take only a year for the crop to give fruit, agave needs almost seven years to mature for harvest. This means that unlike whisky distillers, who only need to concern themselves with forecasting demand at the distillation stage, tequila distillers need to tell their agave growers how much agave they think they will need seven years in advance. This, in addition to the relative aging time for the two spirits, have huge consequences.
Lets look at it from the view point of either distiller. If a whisky distiller experiences a surge in demand, they can adjust the amount of grain they distill within a year, buying and fermenting more the next year. If, in a few years, the demand for whisky falls back to the previous levels, it does not pose too much of a problem. The distiller only needs to purchase less barley that year, while the whisky that was already distilled can be kept in the barrels for decades while the distiller waits for demand to rise again. In that time, the whisky only improves, and the value of the whiskey simply increases.
On the other hand, if a tequila distiller encounters the same situation, they have only the agave they planted seven years ago to distill. They will not see a significant increase in crop until the plants that they plant now matures seven years later. Thus, the tequila distiller has a dilemma. If they invest a lot of money into growing a lot more agave, they risk taking a huge financial blow if demand falls again in 4 or 5 years. Unlike grain, agave doesn’t have as much use in different industries, so farmers will not grow agave unless contracted to do so by the distillers. Furthermore, tequila reaches anejo-level aging within two years time, due to the significantly higher temperatures in Mexico compared to Scotland or even Bourbon county. Perhaps the tequila could be aged for a few more years past that point, but any more and the product risks deterioration due to over-aging. At that point, the tequila must be bottled, putting a large strain on warehousing, increasing market supply, and therefore lowering prices. The double whammy of lower prices and the large investment made in growing extra agave could easily sentence smaller distillers to financial ruin.
The result of the agave shortage of the 90’s is that the price of agave rocketed up, leading to widespread agave theft and illegal sale on the black market. At the same time, cheap tequilas went out of business, as the higher cost made their target retail price no longer feasible. Large distilleries changed their strategy, focusing instead on producing and marketing premium tequilas that could be sold at a higher price to cover the ever-increasing cost of agave. These premium tequilas now have an enormous presence on the spirit market, slowly taking the market share from cheap mixtos tequila.
In the end, we see that shortages are not just one or two year spells that vanish like a dream. These shortages can have enormous consequences on the market, changing the way we drink, what we can sell. With the greater Asian region slowly opening up to spirits, distillers must be extremely careful to make sure they can accurately predict the demand that emerging spirit markets like China, South Korea, and Hong Kong can incur. However, unlike the past, we now live in an age of unprecedented science and technology, which has to power to let us look further into the future, force agave into maturity in as little as five years, and root out pests and fungus before they do any serious damage. It is unlikely we will see as dramatic a change in the spirits market today as our predecessors did in the past, but at the very least we could see much higher price tags.