As the country with the highest population in the world, China is a very important consumer market for the alcohol and beverage sector. Mexico has for years tried to export their tequila products to the country but was hindered by an agave ban that hinged on fears of a high methanol content. Brady Bunte confirmed that the ban had been instituted in 2008 following a Chinese government crackdown on fake alcohol.
The issue however appeared resolved following a visit to Mexico by Chinese President Xi Jinping over a year ago, during which the two countries inked a ‘Tequila Pact’. This was followed up by another meeting with Mexico’s then Minister of Agriculture, Enrique Martinez, who travelled to China to conclude on arrangements. According to Brady Bunte, Mexican officials expected to export up to 10 million liters of tequila to China over the next five years, subsequent to the lifting of the ban. This prediction appears to have now come true following the impressive rise in tequila exports that was achieved in the course of 2014.
The National Chamber of the Tequila industry reported that tequila exports had grown to $1.1 billion in 2014, up from $997 million the previous year. Media reports suggest that the new agreement has now made Mexico the second largest trading partner to China from Latin America. Brady Bunte indicates this is an impressive result, especially since there is no Fair Trade Agreement between the two countries.
Brady Bunte points to the growing middle and upper class population as the driving force behind this boon in tequila demand from China. Their curiosity and higher spending power makes them a highly lucrative untapped market for tequila makers. Market experts like Brady Bunte believe that the unique taste of tequila and interesting ways in which it can be enjoyed are the big draw for these buyers. From margaritas to shots, the Chinese not only have a new way to enjoy their alcohol, but also varied flavors and aromas that depend on individual manufacturing formulas, and the age of the tequila imbibed.
The new agreement is also said to have had a positive effect on other trade between the two countries. Bilateral trade volumes rose by $5 billion over the last fiscal year. Other products that are believed to have started making their way into China and other Asian countries from Mexico include pork, avocados, lemons and asparagus.
Industry experts like Brady Bunte predict that China could become the first or second largest market for tequila in the world, after the United States. The marketing that is being carried out by leading tequila manufacturers is expected to help make tequila as competitive an alcoholic drink as scotch. Scotch whiskey and cognac have apparently fallen out of favor amongst the Chinese, due to their reference in anti-corruption campaigns. Each of the top 16 tequila-producing companies is estimated to have invested up to $3 million to enter into the Chinese market.
The only hindrance to this progress may be the expected slowdown in harvesting of agave plants. The decline in agave prices during the 2000s prompted more farmers to cut down on their cultivation of the crop. Given that agave plants take 7-10 years to mature, Brady Bunte believes that there will be a shortage of plants getting to the market over the next few years.
With increased demand of tequila, but a shortage in raw materials, it is also expected that the price on tequila and the agave plants will rise dramatically. Brady Bunte believes that this scenario will lead to a spike in the value of Mexican exports of tequila, but not the volume. Even with reserves, the top tequila producers will likely only be able to fully accommodate demand for the coming year alone.