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Can Tequila brands cash in on the agave price crash?
As the cost of agave plummets, are we about to see a boom in higher quality Tequila at a lower price point?
The price of agave, despite spiking less than two years ago, has begun to dive. Prices in Mexico hit a record MXP32/kg only 18 months ago, but by February 2024 they had plunged to MXP5/kg.
Fluctuations in the price of agave are a long-term pattern, according to IWSR Drinks Market Analysis, with the cycle from peak to peak, or trough to trough, occurring roughly every 10-15 years.
The last pricing trough occurred in 2007-10, when prices dropped as low as MXP2/kg.
Agave prices are now on the downward slop, IWSR analysis has noted, but what will this mean for the Tequila boom?
Analysts predict that the drop in price of raw materials will provide producers with the opportunity to improve product quality at lower price points.
Tequila and Mezcal brands will also be able to divert extra supply to international markets, what with the increased number of agave growers entering the market over the last few years. A huge numbers of new plants that have gone into the ground in the past few years (up by more than 10% between 2021 and 2022 alone). According to industry reports, the number of registered agave growers has more than quadrupled since 2018 as well.
Jose Luis Hermoso, IWSR Research Director for Central and South America, said he has witnessed a “panic sale among amateur agave growers who have recently joined the industry in a bid to cash in on the agave spirits boom”.
A large inventory of agave plants, plus slowing demand for premium Tequila in the US after years of significant growth have prompted the flash sale, but this is not the end of prices dropping.
“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 said.
Producers are therefore faced with a choice: with lower costs, they can fund discounts to increase market share, however, brands will be wary of sacrificing their recently-acquired equity by cutting prices.
Adam Rogers, Research Director for North America, IWSR, explained: “Declining agave prices give leading brand owners the opportunity to improve their margins and/or increase promotional activity in order to build category share.” However, he continued, “these experienced, marketing-led organisations will be wary of damaging their brand equity by widespread discounting.”
Rogers added: “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.”
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