IWSR: agave pricing ‘will not hit the bottom until 2026’

Agave prices in Mexico are set to continue falling in the coming years and could lead to more affordable 100% agave Tequila brands joining the market.

IWSR Drinks Market Analysis noted that agave prices hit a record MXN$32 (US$2) per kg 18 months ago, but by February this year, prices fell to MXN$5 (US$0.30) per kg.

The IWSR expects price drops to continue as an abundance of new plants have been put into the ground in recent years (up by more than 10% between 2021 and 2022).

It also noted that industry reports suggest that the number of registered agave growers has more than quadrupled since 2018. Agave usually takes between five to seven years to reach maturity.

After several years of double-digit increases, Tequila sales are starting to slow in the US, the category’s biggest market. The IWSR said volume consumption grew by 4% during the first six months of 2023.

“The very large inventory of agave plants, coupled with slowing demand of premium Tequila segments in the US after years of rapid growth, has sparked a panic sale among amateur agave growers who have recently joined the industry in a bid to cash in on the agave spirits boom,” said Jose Luis Hermoso, IWSR research director for Central and South America.

“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.”

The IWSR noted that lower prices can cause growers to underplant, which results in diminished supply and drives up prices. The last pricing trough occurred in 2007-2010, when prices fell as low as MXN$2/kg (US$0.12).

“Logically, we would expect to see an influx of cheaper 100% agave Tequila into the market in the near future – so, potentially, a higher-quality product at a lower price, which might attract new consumers and/or encourage trade-down,” added Richard Halstead, IWSR chief operating officer for consumer research.

“The last time we saw a supply glut similar to this was around 2009/10, when numerous new brands came to the market using the 100% agave description, but at prices significantly lower than the majority of incumbent 100% agave brands.”

This influx of brands in 2009/2010 caused a downward trajectory for mixto brands (made with 51% agave). The IWSR said the emergence of new 100% agave brands could exacerbate mixto’s decline and offer a ‘better price-to-quality ratio’.

Adam Rogers, research director for North America, said the IWSR does not expect to see a “race to the bottom in pricing terms, with premium-and-above products remaining dominant as the market leaders will be determined to preserve margin”.

In addition, lower prices and increased supply of agave could enable producers to make products that are aged for longer.

Hermoso highlighted that one positive for the category in the long-term is that larger companies are aiming to “tame the cycle” of buying agave at the peak by “underplanting during pricing peaks and overplanting during pricing troughs”.

Some companies are also securing supply via long-term grower contracts, which could ‘prevent or at least reduce supply and pricing volatility’ in the future, the IWSR noted.

Growth beyond US and Mexico

The extra cash from lower agave prices could also lead to brand owners investing in building awareness of agave spirits in emerging markets such as Asia Pacific, Eastern Europe, the Middle East, Africa and South America, Rogers noted.

Mexico and the US continue to be the biggest markets for agave spirits.

IWSR data showed that the category also grew in 15 of the world’s top 20 alcohol markets during the first half (H1) of 2023, recording double-digit volume gains in 11 of them.

The IWSR attributed its increase in global markets to factors such as the popularity of cocktails in Canada (where volumes were up by 14% in H1 2023); the reopening of China’s on-trade (up by 15%); and Tequila’s ‘improving quality image’ in Spain (up by 20%).

Having sailed past rum in the States, Tequila overtook American whiskey in 2022 to become the country’s second most valuable spirit, only behind vodka, according to IWSR.