Tequila Rack Blog

In the December 17, 2009 issue of Drinks International online magazine, the headline reads:

WHO plans global duty free liquor ban

The story goes on to say…

“The World Health Organization (WHO) has shocked the duty-free industry by proposing a global ban on duty-free liquor sales, a business which was worth $6.3bn last year.”

The proposal to slow down alcohol consumption was actually published in December of last year, but will finally get onto the WHO’s Executive Board agenda between January 18-23, 2010. The Board is made up of health ministers from 34 leading countries, and if it approves the proposal, it will be presented to the WHO’s full annual General Assembly in May 2010.

Keith Spinks, secretary general of the European Travel Retail Council (ETRC) believes that the proposal will pass the Executive Board and into the General Assembly that is made up of 193 governments, and warns, “If this goes though, it will be a disaster for the industry.”

Should the World Health Organization ratify this proposal, there is an upside.  According to Spinks, this proposal on liquor would not be “binding.”

“It is going to be up to each member country to decide whether to implement the proposal or not.” But, he adds, “My fear is that some countries will and some won’t, leaving us in a big mess.”

In 2005, the WHO tried to ban duty-free tobacco sales through its Framework Convention on Tobacco Control (FCTC). The FCTC was ratified by 165 countries worldwide, but has yet to be implemented by any country.

A quick review of the members of the World Health Organization may give a clue as to why.

Alcohol, Tobacco, and Tourism

All countries which are Members of the United Nations may become members of World Health Organization by accepting its Constitution.  So, which countries are members?

Australia, the Bahamas, Costa Rica, Dominican Republic, Egypt, Finland, Germany, Hungary, Italy, Mexico, Switzerland, UK, and the USA, to name just a few.  Most all of these countries have one or more international airports with duty free stores selling among other things, spirits, cigars, and cigarettes.

Not only do most of these member countries tout tourism as a major industry, but many also have their signature spirits (and cigars, in some cases) that define them.  Examples are rum from Barbados, limoncello from Italy, and of course, tequila from Mexico.

Where duty free merchants pay inventory/business or other taxes, customers usually pay none.  For these countries, tourism, and the profit made at duty free shops from alcohol and tobacco sales, is directly related to each other.

How much damage could the enforcement of this proposal do?

WHO vs. Patrón

As stated above, duty-free liquor sales from last year amounted to $6.3 billion in 2008.  That accounted for 17.2% of the total global liquor business according to the Drinks International article.

In the April 2008 issue of Impact Magazine, it states that Patrón tequila was also penetrating the travel retail sector overseas, long a key channel for high-end spirits but one in which tequila was underappreciated.  Patrón was aggressively growing its brand by sampling at very visible public relations events in key cities such as London, Athens, Hong Kong, Singapore and Sydney, all whose countries are members of the World Health Organization.

The Patrón Spirits Company, producers of Patrón tequila, claim on their website to be in over 100 countries and islands worldwide.  Given that there are only 193 members of the WHO, the chances are good that Patrón is available in the duty free stores of most of these member countries.

Assuming that the same 163 countries that ratified the duty free tobacco ban in 2005 also decided to ratify—and enforce–the duty free alcohol ban, the results could be devastating not just for Patrón, but also for Sauza, Brown-Forman (El Jimador brand), and Jose Cuervo, as well as all spirits suppliers, duty free retailers, and airports.

While it seems likely that the World Health Organization’s Executive Board will ratify the alcohol ban proposal, it seems unlikely that any countries will actually enforce it.

According to figures released by Herradura, the number of cases of tequila exported annually are…

1. US 11.5 million

2. México 7.5 million

3. Germany 450,000 

4. Russia 300,000

5. Canada 250,000

6. France 200,000

7. Greece 190,000

8. Japan 150,000.   

Of worldwide tequila production, Mexico bottles 33% while the United States bottles 51% as bulk mixto. 

However, figures released by the CRT (Consejo Regulador del Tequila) state that from January to October of 2009, there was a 19% drop in tequila production from 2008.  

A reporter for Excelsior Online recently commented in his column that despite Mexico’s economic drop of 7% during the recession, as of October 2009, sales of tequila have increased 10% over last year. While this columnist attributes the rise in tequila consumption to consumers trying to make the recession more bearable, others in the tequila industry are more optimistic about the future.

Juan Beckmann Vidal, president of Casa Cuervo, sees enormous worldwide potential in the exportation of the Spirit of Mexico, particularly into Asia.  He foresees the annual sales of 137 million liters of tequila to double in the next five years.

With the current instability of each country’s economy, it will be interesting to see what the final production figures are at the end of 2009.

For some reason this article Tequila Timeline: From Agave to the Worm was reposted in Fast Company Magazine on Friday, November 20, 2009 from an earlier post on October 15, 2009.  (Maybe it was because the editors forgot to add the cute tequila graphics the first time?)

Anyway, most of the timeline is historically accurate, except for this factoid:

“1873:  Don Cenobio Sauza exports three barrels to El Paso, Texas, the first tequila in the United States.  Today, the U.S. is the No. 1 market for tequila.  Mexico is second.  Third?  Greece.”

The reference to Sauza exporting mezcal wine into El Paso in 1873 is incorrect.  I’ll explain why momentarily, but first…

Texas’ long history of laying claim to being the home of tequila in the United States can be credited to W. Park Kerr of the El Paso Chile Company fame.  Not for anything that he may have said, but for what he did.

Kerr was the first Texas entrepreneur to distill a private label tequila (Tequila Naciónal) in Mexico to his specifications, thus opening the floodgates of recent tequila brands based in Texas such as RiAzúl in Houston, El Grado in Corpus Christi, Republic Tequila in Austin, Buscadores in San Antonio, and Dos Lunas in El Paso, among others.

Sorry to break this to tejanos, but Texas was not the final destination of that first delivery. 

In his book La historia del tequila, de sus regiones y sus hombres, author Rogelio Luna Zamora recounts:

“‘…con destino a Nuevo Mexico sale una partida de 3 barriles y 6 botijas….’  El punto fronterizo por donde salió fue el Paso del Norte (hoy Ciudad Juárez) en aquel entonces, paso obligado a las mercaderías exportadas por tierra al mercado estadunidense.”

["'...with a destination of New Mexico there is a lot of 3 barrels and 6 jugs....'  The border town point of entry was el Paso del Norte (present day Juárez) that in those days was the required land passage for commodities exported into the American marketplace."]

  In 1873, New Mexico was a territory of the United States, but still considered part of Mexico.  The final destination of Sauza’s shipment is believed to have been to the oldest capital city, Santa Fe.  Being also the terminus of the legendary Santa Fe Trail, the route that opened the Southwest to trading with the Eastern United States, this conclusion only makes sense.

Thirty-nine years later, New Mexico joined the Union.  Flash forward to today, and there is only one New Mexican owned brand of tequila (Silvercoin). 

Perhaps now is the time for more New Mexico entrepreneurs to step up with tequila labels of their own?