Harvesting Blue Weber Agave at Rancho 'El Coyote', Guanajuato, Mexico (Photo: Lucas Vallecillos / VWPics via AP Images)
On Sunday, the Financial Times reported that Mexico is sitting on a 500 million-liter "tequila lake" roughly equal to its annual production capacity. The surplus comes on the heels of trade tensions and a bust in spirits spending in the years after COVID-19.
The Tequila Regulatory Council (CRT) told the Financial Times that Mexico currently has 525 million liters of tequila in its inventory, either aging in barrels or waiting to be bottled. Of the 599 million liters produced in 2023, one-sixth has remained in storage according to the CRT's figures.
“Much more new spirit is being distilled than is being sold, and inventories are starting to accumulate,” Bernstein analyst Trevor Stirling said.
Though agave continues to be one of the fastest-growing spirits categories in America, the industry has witnessed pains over the past few months. Following 13 years of consecutive growth largely attributed to celebrity benefactors and premiumization, tequila exports fell for the first time in January. The 4.2% decline was slim but noticeable, particularly for those who'd bet big on tequila's success north of the border.
Tequila, however, is not the lone wolf. Alcohol spending witnessed an unprecedented boom at the onset of COVID-19 as consumers hunkered down at home and built out their bar carts. This trend was particularly beneficial to so-called premium spirits, loosely defined as bottles that cost $70 or more. Household names like Casamigos, Don Julio, Clase Azul and Patron reaped the rewards.
The pandemic surge has since subsided, leaving industry regulars in a tough spot. Heavy hitters like Diageo and LVMH have reported rough earnings in the latter half of the year. At the same time, younger consumers are opting to drink less as rallying cries like Dry January and Sober October go viral on social media.
Tequila consumption reportedly fell by 1.1% in 2023, down from a 17% rise just two years prior.
Matters have been made worse by President-elect Donald Trump's proposal to impose a 25% tariff on Mexican goods. If implemented, the tariffs could spell disaster for Mexico's spirits industry. The U.S. imported 321 million liters of tequila in 2023, equivalent to over 80% of all tequila exports worldwide. Runner-up markets like Spain, Germany and France imported breadcrumbs by comparison, clocking in between six to eight million liters each.
Mexican officials remain skeptical of the threat.
“It would be shooting themselves in the foot because their consumers would have to pay much more,” CRT president Ramón González added. “When he was president . . . he said exactly the same thing, that there would be tariffs et cetera. Not only did he not put taxes on alcoholic drinks, he lowered them."
