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Mexico has more than half a billion liters of tequila in stock, roughly equivalent to its annual production, as the fast-growing industry anticipates slowing demand and the possibility of tariffs on exports to the United States under Donald Trump.
By the end of 2023, the industry had 525 million liters of tequila in stock, either being aged in barrels or waiting to be bottled, according to data shared with the Financial Times by the Tequila Regulatory Council. Of the 599 million liters of tequila produced last year, about a sixth remained in stock, according to the figures.
“More new spirits are being distilled than are being sold, and inventories are starting to pile up,” said Trevor Sterling, an analyst at Bernstein, attributing the buildup to lower demand and new distilling capacity that recently came online in Mexico. “The tequila industry is set for a very turbulent 2025.”
Consumers' thirst for Mexico's national drink has grown rapidly over the past decade as the drink has spread in the United States, thanks in part to celebrity-backed brands like George Clooney's Casamigos.
But demand has declined over the past 18 months as the pandemic boom subsides and consumers retreat cut back on their drinking in response to rising prices.
The amount of spirits sold in the United States in the first seven months of the year shrank 3 percent compared to the same period last year, according to beverage data provider IWSR. Tequila consumption fell 1.1 percent, compared with a 4 percent rise in 2023 and a 17 percent increase in 2021, the height of the tequila boom.
Although some of the stock is in the process of aging, rather than just waiting for bottling, tequila evaporates quickly compared to other spirits—partly due to Mexico's warm climate—which means that most tequila is not left in barrels after three years.
To add to the industry's woes, Trump threatened Mexico, the United States' largest trading partner, with a 25% tariff on its goods. This would be devastating for the industry and for the Mexican economy, which depends on its northern neighbor to buy 83 percent of its exports.
“It will be like shooting themselves in the foot because consumers will have to pay more,” said Ramon Gonzalez, head of the Tequila Regulatory Council.
Two-thirds of all tequila produced in Mexico in 2023 was exported, with 80 percent shipped to the United States, according to the group, which ensures products adhere to specifications and protects spirits' designation of origin.
The largest tequila export markets after the United States last year were Spain and Germany, each accounting for just 2 percent.
Gonzalez said there was widespread concern about potential tariffs but downplayed their possibility, pointing to increased investment in tequila by American companies and Trump's previous threats that did not materialize during his last term.
“When he was president…he said exactly the same thing, that there would be tariffs and so on,” he said. “Not only did he not tax alcohol, he lowered them,” he said, referring to the Tax Cuts and Jobs Act of 2017. , which lowers tax rates on alcohol produced or imported into the United States.
Two of the biggest 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 research by Bernstein.
At the same time, tequila producers took advantage of cheap raw material prices, including agave, the plant from which tequila is made.
“There is an oversupply right now that is many times more than the industry needs, and some of these farms probably won't sell given the industry numbers,” Gonzalez said.
The price of agave fell from about 30 pesos per kilo to between six and eight pesos for contract suppliers, or up to two pesos on the spot market, according to producers and farmers.
“It would be a big hit to the economics of the category if the financial upside caused by lower aloe prices is contested by high-end price wars,” Sterling said.
