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Mexico is sitting on more than half a billion liters of tequila in inventory, nearly its annual production, as the fast-growing industry reckons with slowing demand and the prospect of tariffs on US exports under Donald Trump.
By the end of 2023, the industry had 525mn liters of tequila in inventory, either aging in barrels or waiting to be bottled, according to data shared with the Financial Times by the Tequila Regulatory Council. Of the 599mn liters of tequila produced last year, about one-sixth remained in inventory, according to the figures.
“There's a lot more fresh air being consumed than sold, and inventories are starting to accumulate,” said Bernstein analyst Trevor Stirling, citing the build-up of declining demand and new distillery capacity that recently started operating in Mexico. “The tequila industry is set for a turbulent 2025.”
Consumer thirst for Mexico's national drink has grown rapidly over the past decade as the spirit has become more mainstream in the US, in part thanks to celebrity-endorsed brands like George Clooney's Casamigos.
But demand has rebounded in the past 18 months as the pandemic eased and buyers cut back in their drinking because of the high prices.
The amount of spirits sold in the US in the first seven months of the year decreased 3 percent compared to the same period last year, according to data from the IWSR. Tequila consumption fell 1.1 percent, compared to a 4 percent increase in 2023 and a 17 percent increase in 2021, the height of the tequila surge.
Although some of the inventory is in the aging process, rather than just waiting to be bottled, the tequila matures quickly compared to other aging spirits – partly due to Mexico's warm climate – which means that most tequila is not left in barrels for more than three years.
Adding to the business woes, Trump has threatened Mexico, the US's biggest trading partner, with 25 percent tariffs on its goods. That would be detrimental to the business and economy of Mexico, which depends on its northern neighbor for 83 percent of its exports.
“They will be shooting themselves in the foot because their customers will have to pay more,” said Tequila Governing Council president Ramón González.
Two-thirds of all the tequila produced in Mexico was exported by 2023, and 80 percent was sent to the US, according to the group, which ensures that the products comply with specifications and protect the designation of origin of the spirit.
The largest export markets for Tequila after the US last year were Spain and Germany, each accounting for 2 percent.
González said there is widespread concern about potential tariffs but they played down their likelihood, pointing to increased investment in tequila by US companies and Trump's previous threats that did not materialize during his last term in office.
“When he was president . . . he said exactly one thing, that there will be fees and so on,” he said. “He didn't just raise the tax on alcoholic beverages, he lowered it,” he said, referring to the Tax Cuts and Jobs Act of 2017, which lowered the tax rate on alcohol produced or imported into the US.
The two biggest tequila brands, Bacardi-owned Patrón and Casamigos, now owned by London-based Diageo, have cut prices more than a year in response to weak consumer demand, according to Bernstein's research.
At the same time, the producers oftequila have benefited from low commodity prices, includingagave, the plant from which itequila.
“There is a surplus of food currently needed by the industry, and maybe some of these crops will not be sold based on the industry's numbers,” González said.
The price of agave has dropped from about 30 pesos per kilo to between six and eight pesos for contracted suppliers, or less than two pesos in the local market, according to producers and farmers.
“It would be a huge blow to the economy if the financial increase from agave prices were to compete away from the high price,” said Stirling.