Tequila sunset? Demand slowdown poses dilemma for agave growers

In the highlands of Jalisco, Mexico’s largest tequila-producing region, some growers of agave, the spirit’s base ingredient, are fearful of committing to another seven-year planting cycle after a significant drop in price for the cactus-like crop.

Spirits makers have struggled for years to secure enough agave as tequila demand surged to record highs in North America. Consumption soared even higher during the coronavirus pandemic when locked-down consumers splashed out on higher-end tipples, and again during the ensuing recovery when they burnt through their savings.

But over the past six months supply has caught up with demand. Agave crops that were panic-planted as thirst for tequila mounted are coming to maturity just as growth in the US has started to moderate.

“The biggest risk we see is that ‘agaveros’ will come out of planting for the next five years ahead,” said Dave Ingram, chief supply chain officer at Bacardi, which makes Patron, Cazadores and Corzo tequila.

“They will look at today’s price and ask if they should plant something else that is going to give a short-term higher return than agave,” he added.

The price of agave has dropped from highs of 31 pesos ($1.83) per kilo six months ago to as low as 10-15 pesos a kilo now, according to industry experts. Sales growth of premium and super premium tequila in the US, meanwhile, has slowed from highs of 25 to 45 per cent in the first half of last year to 5 per cent growth in the same period this year, according to drinks research provider IWSR.

“As soon as there were signs of the US tequila market slowing down growth, there was a lot of speculation among agave growers,” said José Luis Hermoso, research director for Central and South America at IWSR.

“Large brands were not buying any more, so everyone was waiting . . . for the price to…