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Mexico is sitting on greater than half a billion litres of tequila in stock, nearly as a lot as its annual manufacturing, because the fast-growing business reckons with slowing demand and the prospect of tariffs on exports to the US underneath Donald Trump.
By the top of 2023, the business had 525mn litres of tequila in stock, both ageing in barrels or ready to be bottled, in keeping with information shared with the Monetary Occasions by the Tequila Regulatory Council. Of the 599mn litres of tequila produced final 12 months, about one-sixth remained in stock, in keeping with the figures.
“Far more new spirit is being distilled than is being offered, and inventories are beginning to accumulate,” mentioned Bernstein analyst Trevor Stirling, attributing the build-up to falling demand and new distillery capability that has just lately begun working in Mexico. “The tequila business is ready for a really turbulent 2025.”
Shoppers’ thirst for Mexico’s nationwide drink grew quickly over the previous decade because the spirit went mainstream within the US, partly due to celebrity-backed manufacturers resembling George Clooney’s Casamigos.
However demand has fallen again over the previous 18 months because the pandemic spirits increase subsided and shoppers cut back on their consuming in response to larger costs.
The quantity of spirits offered within the US within the first seven months of the 12 months shrank 3 per cent in contrast with the identical interval final 12 months, in keeping with drinks information supplier IWSR. Tequila consumption fell 1.1 per cent, in contrast with a 4 per cent rise in 2023 and a 17 per cent rise in 2021, the peak of the tequila surge.
Although a few of the stock is within the means of being aged, fairly than simply awaiting bottling, tequila evaporates quickly in contrast with different ageing spirits — partly due to Mexico’s heat local weather — that means that the majority tequila will not be left in barrels past three years.
So as to add to the business’s woes, Trump has threatened Mexico, the US’s largest buying and selling companion, with a 25 per cent tariff on its items. That may be devastating to the business and to Mexico’s financial system, which depends on its northern neighbour to purchase 83 per cent of its exports.
“It will be taking pictures themselves within the foot as a result of their shoppers must pay far more,” mentioned Tequila Regulatory Council president Ramón González.
Two-thirds of all tequila produced in Mexico was exported in 2023, and 80 per cent of that was shipped to the US, in keeping with the group, which ensures merchandise adhere to specs and protects the spirit’s designation of origin.
Tequila’s largest export markets after the US final 12 months had been Spain and Germany, which every made up simply 2 per cent.
González mentioned there was broad concern in regards to the potential tariffs however performed down their chance, pointing to the elevated funding in tequila by US firms and to Trump’s earlier threats that didn’t materialise throughout his final time period in workplace.
“When he was president . . . he mentioned precisely the identical factor, that there can be tariffs et cetera,” he mentioned. “Not solely did he not put taxes on alcoholic drinks, he lowered them,” he mentioned, referring to 2017’s Tax Cuts and Jobs Act, which diminished tax charges on alcohol produced or imported to the US.
Two of the biggest tequila manufacturers, Bacardi-owned Patrón and Casamigos, which is now owned by London-listed Diageo, have been chopping costs for greater than a 12 months in response to weaker shopper demand, in keeping with analysis by Bernstein.
On the similar time, tequila producers have gained from cheaper uncooked materials costs, together with for agave, the plant from which tequila is made.
“There’s oversupply in the mean time of a number of instances what the business wants, and possibly a few of these plantations gained’t be offered wanting on the business numbers,” González mentioned.
The worth of agave has plummeted from about 30 pesos per kilo to between six and eight pesos for suppliers with contracts, or as little as two pesos on the spot market, in keeping with producers and farmers.
“It will be an enormous blow to class economics if the monetary upside from falling agave costs had been competed away by high-end pricewars,” mentioned Stirling.
