Mexican wine: A masterclass in shortsighted public policy

Sinister incentives emerge from poor regulation and Mexico’s support of its native wine industry.

MxPE: Mexican politics for the global business reader.

Mexico barely produces any wine: Its total vineyard acreage is a measly 4% of Argentina’s far more productive winemaking lands. Mexicans barely drink any wine: Per capita consumption is less than one litre a year, compared to Portugal’s 52 or the US’s 11. 

And yet, the Mexicans who do drink wine love their country’s plonk. They support it fiercely, driving Mexican wine prices up. On paper, it is a simple case of low supply and high demand. In practice, the reason Mexicans pay such high prices is the result of years of bad policy and a market so unregulated as to have sometimes slipped into fraud.

Mexican wine is a promising local industry that is at risk of going further down the wrong path. It is also a microcosm of the country’s broader issues with industrial policy. As opposed to the tequila or mezcal industries, Mexican wine competes on the global market with fewer protections against much more established producers. When compared to the beer industry, where Mexico is the world’s top exporter, vineyards cannot produce the raw materials for wine at short notice—a winery’s first vintage can take many years between planting, harvesting, and bottling. 

It is an industry that requires time, capital, and a stomach for risk at the best of times. Government policy (or lack thereof) has made each of these factors worse for Mexican producers, putting them at a further disadvantage against their global competitors and incentivising some dodgy practices. 

Zoom out and it’s the same story across other, often far more economically important sectors. What is particularly tragic about Mexico’s wine industry is that Mexicans want it to succeed. On the track they're currently on, the government and even some members of the industry are doing their best to wreck it.

Nationalism as a market force

Enologist Sandra Fernández didn’t know she was on the verge of making history when she was contracted by Aeroméxico. Mexico’s flagship airline had hired her to team up with Casa Madero—which, having been founded over four centuries ago, is the Americas’ oldest winery—to blend an exclusive wine.

Passengers loved it so much that 2V and 3V by Casa Madero became one of Mexico’s best selling and most loved white and red wines respectively, Fernández told The Mexico Political Economist. Upscale supermarkets across the country still stock them. 

This moment more or less coincided with a boom in Mexican wine more generally. Arguably, one of the main drivers behind it has been nationalistic sentiment. If wine was associated with sophistication and elegance, then support for Mexican wines was equivalent to buying stock in that imagined identity. 

The problem was that their quality is not comparable with cheaper international labels. One foreign sommelier based in Mexico City told The Mexico Political Economist that Mexicans insisted on drinking swill just because it had been made in their country. (She requested anonymity to avoid reprisals.) 

Interest in Mexican wine was not always attached to national pride. Far more predictably, it was trade liberalisation that initially awoke people’s interest. Previously, people had to go to small specialist wineries and be exposed to wines subjected to high tariffs and judgemental attendants. 

The late 90’s and early 2000’s changed this. Wholesalers like Costco—with its proprietary Kirkland-brand wine—did more to expand Mexico’s wine market than virtually any other industry player, Fernández said. “You just pop an affordable bottle into your trolley along with your shopping and that’s it—no judgement.”

As Mexicans wet their whistles, local production took off. By the late 2010’s, Mexican wine had become the most consumed in the country, followed by Chilean and Spanish fare. However, there was little local knowhow, capital, or time to ramp up production properly, so domestic production only covered about 30% of demand by 2022. The invisible hand of the market responded and prices went up, but the bottles still flew off the shelves.

Mexicans, in their desire to support local wine, had unwittingly kicked off a vicious cycle.

Mexican wine’s vicious cycle

Mexico does make some very good wine. Its top vintages win global competitions. Monte Xanic, a winemaker from Valle de Guadalupe in Baja California, was lauded at the Concours International des Cabernets just last year. Sommeliers broadly agree, though, that as prices have risen for most mid-tier Mexican wines, quality has decreased. 

This trend has been worsened, winemakers will complain, not only by a lack of public incentives like the ones Mexico’s famous spirits boast but by the active undermining of the industry by the government. They will be quick to point to the unreasonable taxation they are subjected to. Many will claim that just this makes Mexican wines up to 40% more expensive than similar international competitors. 

However, pressure to get the government to change course has stalled during this administration. Members of the industry understand that the air of sophistication that wine exudes to some is seen as elitism by others—especially the current government. Many winemakers and enologists were wary of speaking on the record, especially during elections—they feel targeted in an age of anti-elite sentiment. 

What wine industry insiders will be less quick to point out is how deregulation has allowed them to get away with practices that would be classified as outright illegal across the world’s main wine producing countries. Booming demand has increased the temptation to grow sales by means other than the long and expensive process of setting up a vineyard or winery. 

On her way to a conference to promote Mexican wine in the US, Fernández checked in on the Mexican Winemaker’s Council. She said that the stats regarding consumption and production provided by them didn’t add up. Eventually, a council member relented and confessed that this was due to the systemic importation of cheap Chilean and Spanish wine which was then mislabeled as Mexican and sold at a premium. Even the biggest names in wine were doing it, Fernández said she was told.

The outcry resulted in the only wine law Mexico currently has on the books. It more or less reads: “Mexican wine must be wine made in Mexico.”

Other questionable practices continue unabated. The country has seen the rise of unregulated wine maquiladoras—cheap manufacturing plants fittingly set near Mexico’s long established assembly-lines—and rampant “enological inputs”—an industry euphemism for the chemical enhancement of wines, which often lead to the excessive use of sulfites, fertilisers, and other substances carefully regulated in other countries. 

At this point, many winemakers are invested in Mexico’s poorly regulated market. 

The wine industry bets on Mexico’s strengths 

The truth is that wine is not a big enough industry to light the passions of anyone not already invested in it. With supply remaining well below demand, and with no government support in sight, wineries are betting on a part of the business that Mexico does excel at: tourism.

Casa Madero has made clear that it will not be increasing production beyond its existing 400 hectares. Nevertheless, last year, it announced an investment of $1.5 billion pesos (close to $90 million dollars) into the renovation of its ancestral seat in Parras, Coahuila, to make the most of the patriotic Mexicans keen to pay for the privilege of seeing where their favourite wines are made. 

Freixenet, a cava maker in the central state of Querétaro, hosts as many visitors as some of the great historic wineries of the world, said Fernández. Valle de Guadalupe has become one of Baja California’s touristic cash cows. Over 750,000 tourists visit each year, becoming so important that, since 2018, the valley is the only geographical area afforded special protection by the government. Unsurprisingly, it is only once a sector’s value has been proved locally that the government has stepped in, and here a few lessons can be drawn.

Semiconductors may seem a world away from wine making, but its struggle is similar. Just as Mexico grows tonnes of grapes, the vast majority of which are inappropriate for wine, it also produces a good amount of the world’s argon—an inert gas used across many industries, including winemaking. Chip manufacturing specifically requires inert atmospheres of 99.9% pure argon. Mexico’s current production plants cannot provide any if it because purity is too low. As talk about getting Mexico integrated into the global semiconductor supply chain picks up, it’s the pre-existing industries like argon that could benefit from government support and guidance—in turn benefitting the country as a whole. 

Same story, different sector.

Here are your key takeaways

1. Mexico has many promising industries that cannot take off because of poor government policy.

2. The wine industry has leveraged well-known strengths in surprising new ways. Whereas in the 90’s and early 2000’s wine consumption was driven simply by greater access, by the 2010’s interest in wine surged thanks to its links to the tourism industry—something Mexico does rather well.

3. The Mexican government often must be presented with a clear path to success before it can be convinced to support any given industry.

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