Declining demand has left Mexico with a 500mn-litre tequila reservoir.

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Mexico is sitting on more than half a billion liters of tequila compared to its annual output as the fast-growing industry fears slowing demand and possible tariffs on US imports under Donald Trump.

In the year By the end of 2023, the industry had 525mn liters of teka in inventory, waiting to be aged in barrels or bottled, according to data shared with the Financial Times by the Teaka Regulatory Council. About a sixth of the 599mn liters of tequila produced last year remained in inventory, according to the figures.

“More new inventory is being sold than it is being sold, and inventories are starting to build up,” said Bernstein analyst Trevor Sterling, citing declining demand for construction and new manufacturing capacity that recently started operating in Mexico. “Tequila Industry Set For A Turbulent 2025.”

Consumers’ thirst for Mexico’s national drink has grown rapidly over the past decade, while the spirit has become mainstream in the US.

But demand has fallen over the past 18 months as the pandemic dampened spirits and consumers cut back. cut down on their drinking in response to high prices.

Spirits sold in the U.S. in the first seven months of the year fell 3 percent from the same period last year, according to beverage data provider IWSR. Tequila consumption will decrease by 1.1 percent, from a 4 percent increase in 2023 and a 17 percent increase in 2021, the height of tequila.

Although some of the ingredients are still in the aging process, instead of waiting to be bottled, tequila evaporates faster than other aging spirits—in part because of Mexico’s hot climate—which means most tequila doesn’t sit in barrels for more than three years.

To make matters worse for the industry, Trump has threatened to impose a 25 percent tariff on Mexico, America’s biggest trading partner. That would be devastating for the industry and Mexico’s economy, which relies on its northern neighbor for 83 percent of its exports.

“Their consumers are shooting themselves in the foot because they have to pay more,” said Ramon Gonzalez, president of the Tequila Regulatory Council.

Two-thirds of the tequila produced in Mexico will be exported by 2023, and 80 percent will be sent to the US, ensuring that products meet specifications and indicate the spirit’s origin.

Last year, the biggest tequila export markets after the US were Spain and Germany, each accounting for just 2 percent.

Gonzalez said there was widespread concern about possible tariffs, but played down the chances, pointing to increased investment in tequila by US companies and Trump’s previous threats in his last term.

“When he was president . . . He rightly said that there will be tariffs and more. Referring to the Tax Cuts and Jobs Act of 2017, he said, “Not only does it eliminate taxes on alcoholic beverages, it also lowers the tax rate on alcohol imported into the United States.”

Bacardi-owned Patron and Casamigos, the two biggest tequila brands currently owned by London-listed Diageo, have been cutting prices for more than a year amid weak consumer demand, according to research by Bernstein.

At the same time, tequila producers found cheaper raw materials, including agave, the plant from which tequila is made.

“There’s often an oversupply of what the industry needs right now, and maybe some of these farms won’t sell based on the industry numbers,” Gonzalez said.

Producers and farmers said that the price of agave dropped from 30 pesos per kilo to six or eight pesos for contract suppliers or two pesos in the market.

“If the financials associated with falling agave prices are matched by higher prices, it will be a big problem for the economics of the category,” Sterling said.