With agave costs taking a nosedive, is the tequila market on the cusp of a surge in higher-quality offerings at more affordable prices?
The cost of agave, which saw a steep increase less than two years ago, is now on a sharp decline. In Mexico, the price peaked at an unprecedented MXP32/kg just 18 months prior but had dropped to MXP5/kg by February 2024.
According to IWSR Drinks Market Analysis, the agave price’s volatility follows a long-standing cycle, typically spanning 10-15 years from one peak or trough to the next.
The most recent low in prices was recorded during 2007-10, when they fell to as little as MXP2/kg.
Currently, agave prices are trending downwards, as observed by IWSR, but the implications for the ongoing Tequila surge remain to be seen.
Experts anticipate that the reduced cost of raw materials will enable manufacturers to enhance the quality of their products without increasing prices.
Moreover, Tequila and Mezcal brands might find it easier to expand their international presence, given the rise in agave cultivation over recent years. The sector has seen a significant increase in plantations, with over 10% growth between 2021 and 2022. Since 2018, the number of registered agave cultivators has also surged, more than quadrupling.
Jose Luis Hermoso, IWSR Research Director for Central and South America, commented on the current market dynamics, observing a “panic sale among amateur agave growers who have recently joined the industry in a bid to cash in on the agave spirits boom”.
This glut of agave, coupled with the dwindling demand for premium Tequila in the US following years of substantial growth, has led to the current sell-off, but prices are expected to fall further.
“With such huge numbers of new plants going into the ground in 2021 and 2022, it’s entirely possible that pricing will not hit the bottom until 2026,” Hermoso remarked.
Consequently, producers are at a crossroads: the lower costs present an opportunity to offer discounts and capture more of the market, yet there’s a reluctance to undermine the value they’ve built up by reducing prices.
Adam Rogers, North America Research Director at IWSR, elucidated: “Declining agave prices give leading brand owners the opportunity to improve their margins and/or increase promotional activity in order to build category share.” He added, “these experienced, marketing-led organisations will be wary of damaging their brand equity by widespread discounting.”
Rogers also stated, “We do not foresee any race to the bottom in pricing terms, with premium-and-above products remaining dominant as the market leaders will be determined to preserve margin.”