What it Really Costs to Make Tequila and Why It’s Not Getting Cheaper

Everyone’s doing the same math right now: the cyclical nature and long maturity of agave have come around again, and agave used to make tequila is cheap, so why aren’t bottle prices going down?

It’s true that agave prices plummeted. When agave was at its peak a couple years ago, it was being sold at an incredibly difficult price for tequila-producing distilleries. The peak price was around 32 pesos/kilogram, which is around 82 cents per pound in current exchange rates. Some paid even more than that price, especially for organic agave. But the price drop was sudden, plunging to as low as five pesos/kilo in early 2024, which is around 13 cents per pound. Today, we’re seeing mature agave at six to eight pesos per kilo (15-20 cents/pound).

Realize though that before it went down, agave first went UP. From 5 pesos per kilo to 32 is a 540 percent jump in raw material costs. During those years, especially for tequila brands that produce under a contract, producers/distilleries were rarely offered more money to cover the increase. Instead, they were being pushed to hold the price the same, or at least to minimize increases. The producers and their importers absorbed a lot of the increased costs because brands wanted desperately to maintain the retail prices until it was simply impossible to do so.

Today, there are several new brands offering traditionally made, premium tequila at low prices because they have a distillery that gave them an affordable per-bottle cost based on today’s agave market. But agave pricing is always cyclical. It isn’t going to stay where it’s at – it will climb back up and up and up, like your cable TV bill.

At PKGD, because we focus solely on producer-owned brands (agave spirits brands that are both owned and operated by the distillery where they are made), those lean years with high agave prices impacted us a lot. Many tequila-making families were effectively losing money on each bottle just to keep their brands alive, and keep their teams employed. So, when the agave prices finally eased, the producers can’t just “give back” the difference—it just stops the bleeding from the previous, cyclical round.

So, from my perspective – which will be different than many because of my role as an “operator” in the tequila world – one where we work hard to treat our brand owners right and be positioned to be priced fairly to consumers, here’s the tequila cost breakdown, in four parts.

The method matters

To produce traditional tequila, it takes approximately seven kilograms of agave to make one liter of 100% agave tequila at 55% alcohol by volume (ABV).

Now contrast that with diffusers, which are built to maximize sugar extraction efficiency, so you need roughly half the amount of agave compared to traditional, oven-cooked tequila. That being said – production cost alone surely doesn’t determine the shelf price you pay at the store, but it’s one component.

Dry goods keep rising 

Glass, closures, labels, shipping cartons. These costs rarely go down. Even in normal years, costs for these critical components increase three to five percent. And for tequila brands that use premium packaging, the effect of those increases are multiplied.

Currency fluctuation is a gut punch 

Over 2025, the United States dollar weakened versus the Mexican peso by roughly 14 percent. Producers/distilleries are typically paid in dollars as brand owners want consistency in their costs. But this means that the distilleries yield 14% fewer pesos for each dollar paid to them by American tequila brand owners.

All beer, wine, and distilled spirits imported into the United States must pay excise tax to the federal government, through the Alcohol and Tobacco Tax and Trade Bureau.

The tax is assessed based on “proof gallons” which is one liquid gallon of spirits at 50% ABV (100 proof).

On a 4.5-liter case of tequila distilled at 40 percent ABS (six bottles at 750 milliliters each), the tax is between forty-three cents, and two dollars fourteen cents per bottle. A big gap.

The difference depends on whether the importer for the brand has been assigned CBMA (Craft Beverage Modernization Act) rights. Each distillery can give these rights – which reduce the tax burden – to one or more importers. But for distilleries that make many brands, and thus may work with several importers, these rights are typically apportioned, meaning the rates stay high, or at least higher than forty-three cents per bottle.

Remember too, that extra $1.70 per bottle in federal excise tax will end up being nearly a three-dollar cost difference to the consumer, once distributors and retailers apply their profit margins, which average 30 percent each.

This piece of the tequila expense structure also includes “landed costs” to get it to the supplier’s warehouse. This incorporates shipping costs on both sides of the border, insurance, customs broker fees, warehousing fees, documentation charges, or inspection costs. When all these expenses are totaled and divided by the number of bottles shipped, they add approximately one dollar to the cost of each bottle.

Every layer of the spirits business needs a margin to function: producer/distillery, brand owner, importer, distributor, and retailer (restaurant or store). The producer creates the product. Next, the brand owner manages marketing, branding, and sales. Importers handle logistics across borders and, in some cases like PKGD, also take on sales and marketing. Distributors bring products to local markets, while retailers—such as restaurants or stores—sell directly to consumers.

We each have payroll, rent, utility bills, and all the other costs of doing business, and we need that margin to keep the proverbial lights on.

One of the frequently misunderstood elements of bottle cost is the distributor needs their margin, but the roughly 30 percent markup is applied to the total “laid in” cost, which includes freight to the pickup point, and state excise tax. So, shipping costs and taxes don’t just add dollars at a flat rate, they add dollars at a flat rate multiplied by 30 percent, which then gets multiplied by another 30 percent when the retailer takes their markup.

State excise taxes vary wildly, based on policy decisions and how taxes are apportioned overall. This is one of the primary reasons tequila costs fluctuate so much from location to location. At the high end, Washington state charges $36.55 per gallon. On the low end, Missouri charges $2 for the same volume. On a 750-milliliter bottle, that’s roughly $7.24 tax per bottle versus 40 cents tax per bottle. And that’s before the distributor or retailer takes their margin. Per bottle, it could end up being $12.23 in state taxes versus 67 cents!

This will be one that creates a little controversy, especially amongst tequila enthusiasts (I am one) who delight in delicious tequilas made by great producers. Many of these fans believe that marketing (especially working with content creators) is unimportant, frivolous, misleading, or somehow unnecessary.

But the reality of selling tequila is wildly different. Marketing matters. It’s a requirement, not an option.

In a world with thousands of tequilas competing for attention, having liquid that tastes great and is made well isn’t a marketing plan. Or even a differentiator.

Getting a tequila brand discovered requires tastings, events, educating lots of industry professionals, incentives, menu placements and cocktail programs, signage and other point-of-sale, shirts and other merch, glassware. It’s a whole circus. For premium tequila, it is not unusual for brands to budget four to five dollars per bottle just for marketing costs.

The bottom line is simple: while agave prices finally eased, many producers are merely using the reprieve to recover from the "boom years" that nearly pushed them out of business. 

The price you see on the shelf is not an agave price; it’s a "stack price." This stack includes fixed and rising costs for dry goods, a currency fluctuation "gut punch," federal and wildly varying state excise taxes that get heavily multiplied by distributor and retailer margins, and the several dollars per bottle needed just for marketing. 

Agave is just one component, and its lower cost is currently a lifeline for producers, not a discount for the consumer.

Jeff Ernst is a Partner and Chief Left Brain at PKGD Group. PKGD is a craft spirits importer, brand developer, and strategic consultant. 

Note: PKGD imports the tequila brands G4, El Viejito, El Ateo, and Arriesgato, and is a partner of The Tequila Report.