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Mexico expects its fast-growing industry to cut its annual production of 500 million liters of tequila, about the same amount as tequila, given slowing demand and the possibility of tariffs on exports to the United States under the Donald Trump administration. We have more than tequilas in stock.
By the end of 2023, the industry had 525 million liters of tequila in stock either in barrels or waiting to be bottled, according to data shared with the Financial Times by the Tequila Regulatory Council. The figures show that of the 599 million liters of tequila produced last year, about one-sixth remains in stock.
“There’s a lot more new spirits being distilled than being sold, and inventories are starting to build up,” Bernstein analyst Trevor Sterling said, adding that the increase in inventories is due to a decline in demand and a recent increase in Mexican spirits. This is due to the production capacity of a new distillery that started operations in 2007. “2025 is going to be a very turbulent year for the tequila industry.”
Thanks in part to celebrity-backed brands such as George Clooney’s Casamigos, consumer desire for Mexico’s national drink has soared over the past decade as the spirit has gone mainstream in the United States.
But demand has fallen back over the past 18 months as the pandemic spirits boom subsided and consumers cut back on alcohol in the face of soaring prices.
The volume of spirits sold in the U.S. during the first seven months of this year fell 3% compared to the same period last year, according to beverage data provider IWSR. Tequila consumption increased by 4% in 2023, and fell by 1.1% after increasing by 17% in 2021, the peak of the tequila surge.
Some of our inventory is in the aging process rather than waiting to be bottled, but most tequilas are aged three years, in part because of Mexico’s warm climate, and because tequila evaporates more quickly than other aged spirits. It will not be left in the barrel for more than 30 minutes.
Adding to the industry’s woes, President Trump threatened Mexico, the United States’ largest trading partner, with 25% tariffs on its products. That would be a devastating blow to Mexico’s economy and industry, which relies on its northern neighbor for 83% of its exports.
“Consumers will be shooting themselves in the foot because they will have to pay much higher prices,” Tequila Regulatory Council President Ramon González said.
According to the group, in 2023, two-thirds of all tequila produced in Mexico will be exported, with 80% of that going to the United States. This ensures that products comply with standards and that the designation of origin of spirits is protected.
Spain and Germany were Tequila’s biggest export markets after the US last year, with each accounting for just 2%.
González pointed to increased investment in tequila by U.S. companies and President Trump’s previous threats, which did not materialize during the previous presidential term, and said that although there are widespread concerns about possible tariffs, said that he took it lightly.
“When he was president…he was saying the exact same thing, there would be tariffs and stuff,” he said. “Not only did we not tax alcoholic beverages, we lowered them,” he said, referring to the 2017 Tax Cuts and Jobs Act, which lowered taxes on alcohol produced or imported into the United States.
Two major tequila brands, Bacardi-owned Patrón and Casamigos, now owned by London-listed Diageo, have been cutting prices for more than a year in response to weak consumer demand, according to Bernstein research.
At the same time, tequila producers benefit from lower prices for ingredients such as agave, which is the raw material for tequila.
“There’s an oversupply that’s several times what the industry needs right now, and probably some of these farms won’t sell if you look at the industry numbers,” Gonzalez said.
According to producers and farmers, agave prices have plummeted from about P30 per kilogram to P6 to P8 at contracted suppliers and P2 in the spot market.
“If the economic benefits of agave price declines were to be taken away by luxury price competition, it would be a major blow to the economics of the category,” Sterling said.
