Mexico Grapples with Tequila Oversupply as Excess Stock Piles Up
Mexico is facing a tequila surplus, with over 500 million liters of the spirit sitting in storage, according to the Financial Times, citing the country’s Tequila Regulation Council.
In 2023, Mexico produced around 599 million liters of tequila, with about a sixth of that amount left unsold and in storage by the end of the year, waiting to be bottled. When combined with existing stockpiles, the surplus now equals almost the country’s average annual production of 525 million liters.
The surplus is attributed to a decline in demand in the US, Mexico’s largest trading partner and tequila consumer, as well as potential tariffs on exports under the new Trump administration.
Two-thirds of Mexico’s tequila production in 2023 was exported, with 80% going to the US, while the second and third largest export markets, Germany and Spain, accounted for only 2% each. However, the US tequila consumption has seen a 1.1% decline in the first seven months of 2024, a stark contrast to the 17% increase in 2021, the peak of the tequila boom. Industry analysts point to a combination of factors, including restructuring after the COVID-19 crisis and a price increase that has led to consumers cutting back on their consumption.
The industry faces an additional challenge, as Trump has threatened to impose a 25% tariff on Mexican goods, including tequila, due to the country’s failure to curb the influx of migrants across the border.
Analysts warn that these tariffs could have severe consequences for the Mexican economy. The head of the Tequila Regulation Council, Ramon Gonzalez, expressed concern over the potential tariffs and warned that the US would be “shooting itself in the foot” as its consumers would have to pay more.
However, Gonzalez also noted that the likelihood of these tariffs being implemented is uncertain, given the significant investments of US companies in the tequila sector, according to the FT report.
The tequila surplus has also led to a drastic fall in the price of agave, the main component of the spirit, from around 30 pesos per kilogram in 2020 to two to eight pesos by October 2024. This decline has negatively impacted agave farmers and could destabilize the market, Gonzalez warned.
Despite these challenges, some major tequila brands have responded with price cuts to boost demand. The industry is also seeking alternative uses for agave, such as the production of insulins, syrups, biofuels, and even compostable bags, to diversify the market and alleviate the pressure on agave producers, according to a recent report by Double B Spirits.