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The Rise of China and the Reshuffling of the Global Beverage Market

August 31, 2013
A Mexican farmer harvests blue agave, the plant used to distill tequila.

A Mexican farmer harvests blue agave, the plant used to distill tequila.

The Mexican government last week announced it had shipped their first load of high quality blue agave tequila to China. The shipment, comprised of more than 70,000 bottles, should arrive in China next month. China had initially prohibited the sale of fine tequila in the country, citing concerns over high methanol content. But after Chinese President Xi Jinping visited Mexico in June the ban was lifted. Mexican officials hope that China will become the second largest consumer of tequila—behind only the United States—and expect to export some 10 million liters of tequila to China over the next five years.

The expansion of the high-end tequila market in China is just part of a broader shift in consumption patterns by wealthy Chinese. Demand for high quality single-malt scotcha bottle of which can sell for more than a few hundred dollars while some of the most expensive have sold for more than $38,000—has increased sharply in recent years. The consumption of scotch and other high-end beverages plays an important symbolic role. Writing in the British daily The Independent, Russell Lynch observed,

In China, Scotch is seen as the drink for successful people. They tend to drink in a group sitting around the table and share in the occasion, be it for business entertainment or relationship building. There’s a huge element of “face” in putting a bottle of the good stuff on the table and demonstrating that you’re a good host or business partner, which is why they lean toward more expensive drinks. The houses thus lend themselves to the company’s efforts to premiumise the brand, while recruiting a new generation of drinkers from China’s smaller but faster- growing cities as beer drinkers trade up to spirits, buying Johnnie Walker Black Label and Red Label.

While growth in demand has slowed in recent months, increased global demand has nonetheless resulted in sharp price increases, with the price of single malt scotch up more than 190 percent since 2003. But global demand figures obscure regional changes in the distribution of demand. While Chinese demand increased sharply, demand for single malt scotch in France—historically the world’s largest importer—fell by a quarter over the past few years. Demand in Spain declined by twenty percent, while demand in the United States fell by 2 percent. Demand was increasing among emerging economies, particularly in Russia, Latin America, East Asia, and Africa.

The shifting demand for high-end alcohol thus reflects broader changes in the global economy. As  the emergent economies continue to grow, an increasing number of the nouveau riche seek to define their position through consumption of expensive consumer goods, signaling their arrival in “the good life.”

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