Mexico’s 500mn-litre tequila lake

Slowing demand and the threat of tariffs on exports to the US market has seen as over supply of Mexico’s tequila production. Over the last decade demand grew significantly from the US with celebrity brands such as George Clooney’s Casamigos. However over the last 2 years consumers have cut back on consumption with the higher prices and the increase in the cost of living – tequila would be considered an elastic good. Spirits sold in the US have dropped by 3% in the earlier part of 2024 with tequila falling by 1.1% compared to a 4% rise in 2023 and 17% rise in 2021.

Storage – wine vs tequila One of the issues tequila producers concerns are is that tequila evaporates quickly compared to other spirits. Add to that the Mexico’s warm climate therefore most tequila is not left in barrels for more than 3 years and needs to be on the market. Wine however has a potentially much longer storage duration.

Tariffs Add a 25% tariff on tequila and you have Mexico’s biggest consumer the US (buys 83% of its exports) being severely impacted by the higher price – 66% of tequila produced in Mexico is exported. The price of tequila has dropped from about 30 pesos pr kg to between 6-8 pesos. So there is a an oversupply of several times what the industry needs. In the diagram opposite the demand curve has sifted to the left which means at the original price of P there is an excess supply of Q2 to Q.

Source: FT – Mexico left with 500mn-litre tequila lake after demand slows. 29-12-24

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