Investors — and drinkers — got sobering news on Thursday when Brown-Forman described how agricultural difficulties rocking Mexican farmers hurt the bottom line of the company, which is based in Louisville, Kentucky.

Brown-Forman saw a big part of its first-quarter profit guzzled by a $22 million charge it had to take to deal with an abnormal number of dead or dying agave plants, which it uses to make its Herradura and el Jimador tequilas.

According to Brown-Forman executives, there had been a glut of blue agave cacti in Mexico, which led prices to collapse. That has caused farmers to abandon their fields in favor of more profitable crops like corn. The neglected agave plants became more susceptible to diseases, and Brown-Forman said it recently noticed that about 25 percent of its agave crop is unusable.

A recent article in USAToday explained that in some places over-ripe agave plants are rotting in the fields, since their depressed market price makes harvesting them a losing proposition.

Here’s what Brown-Forman Chief Financial Officer Don Berg had to say during a conference call:

With agave’s typical seven-year growing cycle it is natural to have some plants that perish due to any number of factors including climate conditions, old age or disease. However, during the quarter we experienced an abnormal loss rate and determined that about 25% of our agave plants were unusable. We believe that this situation is not unique to Brown-Forman. As a result of the current glut and relatively low prices for agave we believe that a number of fields have been left untended, creating an environment where normal disease fighting practices generally are more lax.

After blaming neglectful farmers, two Wall Street analyst demanded more details.
     
TIM RAMEY (D.A.Davidson):     Good morning. I would like to learn a little bit more about the agave situation. You are responsible for farming those plants as I recall. I think you bought them from the previous owner. Is that right? And if so, how could it be that (in) just one quarter we discover 25% of what we are farming is no longer viable?  

DON BERG:     There are a number of different ways that we acquire or supply our agave. We do own a few fields of our own, but the largest share are situations where the land may be owned by somebody else, but we own the plants and are responsible for the farming of the plants.

If you look at it, we are constantly looking at the plants that we have, judging the health of plants that we have. Prior to this quarter we were seeing some aspects of some disease in the plants, but it really wasn’t beyond what we would consider to be kind of a normal rate.

It really has only been in the last three months or so where (we’re) going out there and doing our cycle counting that we’ve seen a much more alarming rate of and what we would consider to be an abnormal rate of the disease that we’ve seen in the plants.

We have plantings in predominantly five regions within Mexico. Two of those regions are very healthy. Two seem to be partially affected. One region in particular has been pretty hard hit.  
 

DARA MOHSENIAN (J.P. Morgan):    And can you attribute that to climatic conditions or just farming practices in that region? 
 
 
DON BERG:     I would say it is a combination of the two. There has been a lot of press on what has been going on with agave and the glut of agave and there has been some press in there about how farmers have been burning their fields and moving to corn.

We do think, as the glut conditions have come about and as the particular areas the pricing on agave has gone down, that farmers have kind of abandoned agave and their fields without necessarily taking the agave out. And as a result of kind of a reduced amount or a lack of disease control it kind of created — it has increased the risk across the board in those areas where that is happening.  
 
So a lack of pesticides, herbicides and incentives is killing the world’s tequila.  Better grab that lime and salt while you still can!

(Photos: Reuters)