In recent years, Mexico’s agave industry, centred in the state of Jalisco, has experienced explosive growth, driven by soaring global demand for tequila. Between 2014 and 2023, the number of registered agave growers skyrocketed from 3,000 to over 40,000 and land under cultivation expanded from 83,000 to nearly 500,000 hectares.  

However, this rapid expansion has now triggered a collapse in agave prices, plunging from a peak of MXN 30 per kilo in 2021 to just MXN 2.50 in 2025 - a staggering 92 percent decline. The consequences of this crash are rippling across the supply chain, from small-scale farmers to large tequila brands. 

The immediate impact of the price collapse is being felt most acutely by small producers. Many lack the capital, technology or land to absorb such losses. As a former official at Mexico’s federal Ministry of Agriculture explained, “The downturn is impacting the primary source - the small-scale producer - who often lacks large tracts of land and modern technology, resulting in low productivity.” With returns below the cost of cultivation, some farmers are abandoning agave altogether or switching to maize. Others are burning their fields, unable to find buyers for maturing plants that took up to seven years to grow. 

“The downturn is impacting the primary source - the small-scale producer - who often lacks large tracts of land and modern technology, resulting in low productivity.”

Former official at the Ministry of Agriculture, Mexico

This crisis is also shaking larger players. The industry is facing a massive oversupply, over three times the market’s actual need and there is growing concern that tequila producers lack the capacity to process such volumes. While other industries like pharmaceuticals or construction use agave, these markets “do not require the large volumes that are primarily destined for tequila production,” stated the former official. This mismatch poses serious risks for continuity in the supply chain and could lead to raw material shortages in the medium term, even for big tequila houses. 

Moreover, consolidation is becoming a threat. “The risk is that many small producers could go bankrupt... and we may see the emergence of disguised large estates that report exclusively to the major tequila companies,” warned an agronomist. This would weaken competition, squeeze out small tequila brands and give larger producers disproportionate market control. 

The economic crisis has deepened existing power struggles in agave-growing regions, where criminal groups now play a dominant role. Most notably, the Jalisco New Generation Cartel (Cártel de Jalisco Nueva Generación, “CJNG”) has entrenched itself in the industry. The agronomist confirmed, “It is widely known that criminal groups wield significant territorial power, but the dominant force in the region is the CJNG… with a portfolio of extortion activities that spans the entire agave and tequila supply chain.” They impose “special taxes,” similar to those seen in the lime and avocado trades, effectively criminalising production. 

“It is widely known that criminal groups wield significant territorial power… with a portfolio of extortion activities that spans the entire agave and tequila supply chain.”

Agronomist, Mexico

Where the state has failed to enforce rule of law, cartels have stepped in. As former collaborator at the Centre for Agricultural Studies and Food Sovereignty of the Mexican Congress bluntly stated, “The fundamental role of the state is to safeguard physical integrity and property - yet it is the powerful cartels, not the government, fulfilling that role.” This substitution of state authority by armed groups has led to the rise of illegal self-defence militias, raising the risk of violent conflict and further destabilising already fragile labour and land relations. 

The implications for land access are especially troubling with agave fields being increasingly abandoned, there is a risk of land seizures, either by criminal groups or by large corporations leveraging the crisis. As authorities consider restructuring the industry, they must also address a key question, “If a structured clean-up is carried out to determine who should be allowed to grow agave... what will happen to the displaced producers?” asked the former collaborator. Without protections, this could lead to a new form of dispossession and rural inequality. 

In response, some larger producers are adopting commercial strategies to weather the storm. These include diversifying supplier bases, investing in private security and pushing for government reforms to regulate agave planting. International pressure is also playing a role with consumers in the US and Canada increasingly unwilling to buy tequila linked to criminal groups, which “is putting pressure on the Mexican government to establish a territorial presence in agave-growing areas and prevent further contamination of the entire agave and tequila supply chain,” remarked the agronomist. 

Not all companies are affected equally. Larger corporations with vertical integration and export leverage, such as Diageo (which owns Don Julio), have greater capacity to absorb shocks. Smaller brands, on the other hand, face an existential threat. As the agronomist explained, “Rather than ensuring a sufficient supply of agave, we could enter a period of raw material shortage, even for the major tequila houses, in the short to medium term,” due to mismanagement and speculative planting. 

There are also international lessons to be learned. “Strengthening trade ties with the EU, UK and emerging markets like China (where tequila already enjoys protected designation status) can help stabilise exports and reduce dependence on US demand,” explained the former collaborator. 

Agave is more than a commodity - it is a cultural and economic symbol of Mexico. Still, unless the government, industry and international partners act swiftly, the current crisis could redefine the tequila industry in ways that leave smallholders, communities and even national identity with an almighty hangover.