It looks like the toast of “Salud” before enjoying a tequila shot will more and more commonly be heard in Chinese. A bilateral agreement named the “Tequila Pact” was signed between Chinese President Xi Jinping and Mexican President Enrique Pena Nieto in June 2013. And the Tequila Pact is paying off for Mexican and American tequila business in a big way. With the financial stress many Americans endure tequila companies can net a large profit during down times – along with title loan companies.
The pact was part of a $1 billion deal to mitigate the trade imbalance by boosting bilateral trade between the two countries while putting aside previous differences.
While most predicted that re-opening the Chinese tequila market would be lucrative, numbers released earlier this year by Mexico’s Agricultural Secretary show that the Chinese market for tequila is growing faster than anyone could have foreseen. Responsible for overseeing the Tequila Regulatory Council, the Secretary reported that exports rose by 16% to $568 million in the first six months of 2014.
Mexico exports tequila to more than 100 countries, with 80% of tequila exports going to the United States. With Chinese alcoholic drinks sales projected to reach roughly 84.4 billion liters by 2016 reflecting an average annual growth rate of nearly 6 percent, China is set to compete with the United States as Mexico’s top tequila importer.
What originally led to the tequila ban? The Chinese government banned foreign beverage imports containing over 2 grams of methanol per liter because of potential adverse health effects. High-grade tequila made with 100% agave was included in the ban. Ironically, lower quality tequila with a lower agave content was not subject to these restrictions but did not do particularly well in the Chinese market. Sucking on a lime after a low quality tequila shot to distract you from your esophagus burning shouldn’t be considered a healthier alternative to premium tequila—and Chinese consumers agreed.
Mexico, already suffering from tense relations with China, cried foul at the findings, straining an already contentious relationship between the two. While China was signing trade pacts with neighboring Central American countries like Costa Rica, Ecuador and other Latin American nations, Mexico’s reception of China was icy and distrustful.
Mexico launched action against China in the WTO in 2012 over China’s protectionist practices in the textile and garment industry. Mexican Minister of the Economy, Bruno Ferrari, argued that Chinese subsidies on textile and clothing products broke WTO regulations by causing unfair competition in the industry as a whole.
Not long after the WTO action, the Chinese authorities re-evaluated the health risks associated with tequila and discovered that premium tequila does not pose any harm, leading to the 2013 Tequila Pact.
“We’ve got a great business opportunity ahead of us,” said Cristobal Mariscal, executive vice president of operations at Mexico’s Regulatory Tequila Council. “We’re talking about a market with 300 million customers with great purchasing power.”
With big players in the tequila business like Patrón, Cuervo and Sauza as well as boutique brands looking to increase market share in the Chinese spirits business, keep an eye on their sales performance. The Chinese are showing an increasing interest in wine and beer. Tequila is the perfect pairing. And with the recent instability in the Chinese stock market, the Chinese are going to need some tequila, stat.