Mexico sends 80% of its tequila to the USA.
However now that could be an excessive amount of.
The Tequila Surplus
Signed by the U.S., Mexico, and Canada, the USMCA ensures that tequila is a tariff-free spirit with a specified recipe and area the place it needs to be made. Consequently, tequila drinkers can all the time look to 5 Mexican states and the blue Weber agave for the origins of their drink. Equally, a slew of bilateral agreements and the EU acknowledge tequila’s protected standing.
The Blue Weber agave:
It seems although that tequilla makers might need misjudged their market.
In keeping with the Monetary Instances, Mexico has a whopping half a billion liters of unsold tequila (or possibly extra). Near its yearly manufacturing, the stock displays shrinking U.S. demand. Both ageing in barrels or quickly to be bottled, they’d produced an excessive amount of tequila. Whereas George Clooney’s Casamigos had boosted demand, now shoppers are chopping again. Up 17% in 2021 and 4% in 2023, this yr consumption is down 3 %. Responding, distillers have lowered costs.
The excellent news is that the agave is cheaper. Plunging from 30 pesos a kilo to only 6 or 8 for contract holders, distillers have the potential to provide extra for much less. Nonetheless, their planning is sophisticated by the opportunity of a 25% tariff. As well as, as a result of tequila evaporates rapidly, its life in barrels needs to be restricted to 3 years or much less. So they can’t watch for markets to alter.
Our Backside Line: The Energy of the Market
Having title safety, tequila occupies a “slot” on the correct aspect of a aggressive market continuum:
Whereas tequila’s place on the size ought to imply extra potential to manage costs, as an alternative the market has been displaying its energy. With demand reducing, you possibly can see the outcomes. However, I used to be undecided if cheaper agave makes provide improve or tariffs lower it.
So that you determine:
My sources and extra: Figuring out that tequila was a protected spirit, I discovered extra from this text. and right here and right here. In the meantime, the Monetary Instances defined the tequila surplus.
