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Mexico is sitting on greater than half a billion litres of tequila in stock, virtually 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 below 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 accordance 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 accordance with the figures.
“Rather 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 lately begun working in Mexico. “The tequila business is about 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 increased 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 accordance 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 technique of being aged, moderately than simply awaiting bottling, tequila evaporates quickly in contrast with different ageing spirits — partly due to Mexico’s heat local weather — which means that the majority tequila is just not left in barrels past three years.
So as to add to the business’s woes, Trump has threatened Mexico, the US’s greatest buying and selling associate, with a 25 per cent tariff on its items. That will be devastating to the business and to Mexico’s economic 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 way 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 accordance 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 concerning 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 could 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 decreased 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 reducing costs for greater than a 12 months in response to weaker shopper demand, in accordance with analysis by Bernstein.
On the identical time, tequila producers have gained from cheaper uncooked materials costs, together with for agave, the plant from which tequila is made.
“There may be oversupply in the intervening time of a number of occasions what the business wants, and doubtless a few of these plantations received’t be offered trying on the business numbers,” González mentioned.
The value 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 accordance with producers and farmers.
“It will be a giant blow to class economics if the monetary upside from falling agave costs had been competed away by high-end pricewars,” mentioned Stirling.
