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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 underneath Donald Trump.
By the tip of 2023, the business had 525mn litres of tequila in stock, both ageing in barrels or ready to be bottled, in response to knowledge shared with the Monetary Instances by the Tequila Regulatory Council. Of the 599mn litres of tequila produced final yr, about one-sixth remained in stock, in response to the figures.
“Way more new spirit is being distilled than is being offered, and inventories are beginning to accumulate,” stated 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 because of celebrity-backed manufacturers akin to 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 ingesting in response to larger costs.
The quantity of spirits offered within the US within the first seven months of the yr shrank 3 per cent in contrast with the identical interval final yr, in response to drinks knowledge 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, relatively than simply awaiting bottling, tequila evaporates quickly in contrast with different ageing spirits — partly due to Mexico’s heat local weather — which means that almost all 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 associate, with a 25 per cent tariff on its items. That might 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,” stated 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 response to 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 yr had been Spain and Germany, which every made up simply 2 per cent.
González stated there was broad concern in regards to the potential tariffs however performed down their probability, pointing to the elevated funding in tequila by US corporations and to Trump’s earlier threats that didn’t materialise throughout his final time period in workplace.
“When he was president . . . he stated precisely the identical factor, that there can be tariffs et cetera,” he stated. “Not solely did he not put taxes on alcoholic drinks, he lowered them,” he stated, referring to 2017’s Tax Cuts and Jobs Act, which diminished tax charges on alcohol produced or imported to the US.
Two of the most important tequila manufacturers, Bacardi-owned Patrón and Casamigos, which is now owned by London-listed Diageo, have been chopping costs for greater than a yr in response to weaker shopper demand, in response to 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 may be oversupply in the intervening 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 stated.
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 response to 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,” stated Stirling.
