Thursday, April 18, 2024

Consumer demand, agave prices put pressure on price of tequila

Tequila producers say that rising demand and increases in the price of agave are to blame for the drink getting more expensive over the last four years.

According to data from Iscam, a Mexican company that tracks prices of consumer goods, a bottle of tequila costs on average 438 pesos (US $23), 23% more than in 2015.

José Antonio Cebeira, an analyst at Actinver, a financial services company, told the newspaper El Financiero that one of the factors pushing up the price of tequila is rising demand for other agave products, like agave syrup.

“The causes are a strong demand for tequila which, because of the denomination of origin, can only be produced in some regions,” he said. “And also the success of agave syrup and sweeteners on the international level, all of this is pushing up the price of agave.”

The denomination of origin, which allows tequila to be made only from agave produced in five states, and the fact that agave plants can take as long as seven years to mature, limits the supply of the plant and makes it difficult for growers to respond to rising demand.

And agave is getting more expensive much faster than tequila. According to Carlos Riggen, professor of business at the Monterrey Technological Institute, the price of a kilo of agave went up eightfold over the past five years, from 3 pesos to 26.

Agave represents more than 60% of the cost of making tequila. So even as tequila has been getting more expensive, profit margins for tequila companies have declined an average of 50% over the last five years. Becle, Diageo and Brown-Forman, which own the brands José Cuervo, Don Julio and Herradura, are all reporting pressure on their margins because of the rising price of agave.

But many tequila companies have been making up for declining profit margins with increased sales. According to Mexico’s national statistics institute, Inegi, tequila makers produced 85.5 million liters in the first quarter of 2019, 48.4% more than in the same period five years ago.

Source: El Financiero (sp)

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