Why Tequila Prices Keep Climbing

High agave prices aren’t the only factor driving up the costs of making tequila. Producers are pointing to a number of mostly pandemic-related issues that are making everything from sourcing bottles, printing labels, and shipping products more difficult and costly.

“Covid restrictions prevented many companies from operating for a period of time, and then many were granted (permission) to operate under certain restrictions, such as reduced staff and social distancing,” says Steffin Oghene, Vice President of Business Development at Tequila El Tequileño.

This has had a knock-on effect, and many tequila producers have had to source new suppliers due to a lack of availability, he adds.

Glass bottles are just one of the necessary supplies that are harder to come by, due to pandemic shutdowns and extreme weather in Texas, which stopped the gas supply to Mexico for a period of time, forcing some glass makers to cease operations. These factors led to a reported 40% decrease in glass production this year.

Another challenge facing almost every industry is the reduction in shipping routes and lack of cardboard boxes and containers to ship products in.

“Cardboard prices have doubled and we cannot find wooden pallets to ship our tequila. We had to buy plastic pallets,” says Felipe Camarena, Owner and Master Distiller at the El Pandillo distillery in Jesús María, Jalisco.

The cardboard shortage is being pinned at least in part on the abundance of online orders that were made during Covid lockdowns around the world, eating up existing supply.

As for pallets, lumber prices have increased in many countries as demand for new housing and remodels in the U.S. and elsewhere have soared.

Construction in the tequila region has also led to a shortage of distillery workers, according to Camarena, as agave producers, flush with cash thanks to sustained high agave prices, have moved to invest their gains in new homes and businesses.

Another unwelcome surprise for producers: the rising cost of copper, which is essential for making artisanal pot stills.

“Copper prices have gone up 85%, which makes increasing capacity amid high demand very expensive,” Camarena says.

He, like many other tequila producers, saw a surge in sales last year as consumers shifted from buying shots in bars to buying bottles for home. And the popularity of tequila still hasn’t abated. To ensure future capacity Camarena recently invested in a new 5,000 liter copper pot still, despite the soaring costs.

Faced with these across-the-board cost pressures it’s not surprising that some producers have raised their prices to compensate for their higher production costs. At the El Buho tequila store in Tlaquepaque, salespeople say that many brands have raised prices recently, some by as much as 20%.

Meanwhile, other brands like El Tequileño and Tapatio, have maintained their pre-pandemic prices, hoping life will be back to normal again.

But even as supply chains get straightened out, producers’ largest expense continues to be sourcing agave, which still stands at 27 pesos/ kilo.

“Our number one cost is still agave,” says Guillermo Erickson Sauza, owner of Tequila Fortaleza. “Ten years ago it cost us about US$1,875 to fill our small (15 ton) oven. Now, it costs us around US$22,500,” he adds.

While one might think that agave prices would come down during the pandemic, when retail outlets were closed, the unforeseen explosion in demand kept prices high.

Fortaleza’s other supply costs, such as for bottles and cardboard, haven’t risen yet because they are under contracts, Sauza added, but that could change soon.

Also ticking up some producers’ costs is a lack of mature agave (7+ years), which allows tequila makers to get a higher yield because mature agaves contain more sugar that can be converted into alcohol. Really sweet agave can make a substantial difference to producers’ bottom lines, allowing them to increase their yields by around 30%, says Sauza.

However, agaves aged 5 and 6 years are all that most distilleries have access to right now. Those last few years are when the plant produces the most sugar.

During a recent visit to El Pandillo, we saw Camarena inspecting cooked agave that recently came out of his oven. It was from his last field of fully mature agave. The piñas were dark with caramelization, and sweet agave juices dripped off the leaves as we tore off pieces to taste.

“This is really sweet. I should get a pretty good yield,” Camarena said. In these costly times, every bit helps.