Alpaca Supply and Demand
Around the world alpacas are in strong demand, and people pay high prices for them. They are scarce, unique, and the textiles produced from their fleeces are known in the fashion centers of the world. There are excellent profit opportunities and tax advantages available to alpaca breeders. The market for alpacas has been moderated by the effects of relatively slow herd growth. As of early 2004, the total population of alpacas in the United States was about 50,000 and about 15,000 in Canada.
Supply of alpacas will continue to be limited in the near future for a number of reasons including the fact that they reproduce slowly; many breeders retain their offspring to build their herds; the size of the national herd is limited; and the U.S. alpaca registry is closed to further importation to protect our national herd, which will further moderate U.S. herd growth.
The demand for alpacas has increased dramatically every year since their introduction outside of South America (1984). Alpacas are also in high demand in Canada, Australia and New Zealand and are appearing in England, other European countries, Japan and South Africa. This growth is sure to continue as the alpaca gains international recognition.
Alpaca Values
An alpaca rancher with a small herd on a small acreage can expect to harvest his animal’s fleeces and sell their offspring profitably. The value of alpaca fleece is the economic underpinning of the future market of alpacas. Breeders outside of South America are beginning to organize fiber co-ops for the commercial processing of the fleece. Domestic fiber is often sold to cottage industries that revolve around hand spinning and weaving. Each animal will produce around 3 to 10 lbs. of fleece a year. Alpaca ranchers sell their fleece in a variety of ways including raw fiber, rovings, yarns, and finished products, with lucrative margins.
The current alpaca industry is based on the sale of quality breeding stock, which commands premium prices. Female alpacas usually begin breeding at 18 months of age and males at 2-3 years. The females produce one baby per year during a reproductive life of 10-12 years. Factors that influence individual alpaca prices include color, conformation, fleece quality and quantity, age and gender. Females sell for more money on average than males, but herd sire quality males have historically commanded the highest individual prices. Females range in price from about $15,000 to $40,000 or more. Proven, top-quality herd sires have sold in excess of $300,000.
Another benefit of owning alpacas relates to the concept of compounding. Savings accounts earn interest, which if left in the account, adds to the principal. The increased principal earns additional interest, thereby compounding the investor’s return. Alpaca breeders also witness the effects of compounding over time. Alpacas reproduce almost every year, and about one-half of their babies are females. When you retain the offspring in you’re herd, they begin producing babies. This is referred to as “alpaca compounding.” Tax-deferred wealth building is another “alpaca advantage.” As your herd grows, you postpone paying income tax on its increasing value until such time as you begin selling the offspring.
Alpacas are also fully insurable against theft and mortality. Insurance can be purchased for your stock regardless of their age. Average insurance rates are 3.25% of the value of the animal. The Alpaca Registry The Alpaca Registry, Inc. (ARI) is a database housing the genealogy, blood typing and ownership records of alpacas in North America. Since its inception in 1988, the Registry has mandated blood typing as a requisite for registration and accepts only offspring of registered alpacas that qualify by blood typing. Most alpaca breeders in the U.S. have herds registered with the ARI. ARI registration provides the financial foundation of the national breeding program. When purchasing an ARI-registered alpaca, the buyer is assured of being provided a correct history of that alpaca based on DNA blood typing. In addition to being able to track and verify the genealogy of a particular alpaca, the Registry allows breeders to track progeny as well. An added benefit of ARI registration is that it ensures a stolen alpaca can never be used in a breeding program and therefore has only the value of a fiber producing non-breeder, thus making the theft of alpacas extremely rare in the U.S.
Two Ways To Own Alpacas
The first approach is to purchase the animals and raise them yourself. The second is to purchase the animals and place them in the care of an established breeder. This arrangement for care and boarding is known as agistment. Under this method, you as owner, typically would still make the important decisions about care, breeding, sales, etc. You should develop your own financial analysis utilizing professional support if necessary. Expenditure of funds warrants a full assessment of risks. The buyer needs to establish a comfort level that this is the right balance for their lifestyle. Analyzing the feasibility of alpaca ownership requires making a set of assumptions. Determining the costs associated with raising the animals and how much they might sell for in the future are the basic elements used in projecting a return on the investment. The assumptions found here are estimates based on many breeder's experiences. The hands-on method of raising alpacas, as either a part or full time business, requires that the breeder own a small ranch or acreage. The property would need to be properly fenced and have a small barn or shelter. Many new buyers start with two females (and purchase stud services).
Financial Observations
The major tax advantages of alpaca ownership include the employment of depreciation, capital gains treatment, and if you are an active hands-on owner, the benefit of offsetting your income from other sources with expenses from your ranching business. The financial return using the agisted approach, should you elect to board your animals, is also very good. Quality, color, gender of offspring, and strength of the overall industry could influence results positively or negatively. It is important that you make a purchase decision using assumptions that reflect your personal tax and financial situation, as well as your own assessment of the alpaca industry. It is always wise to consider both the upside and the downside of any potential purchase. It is important to feel comfortable with a range of possible financial returns if your actual experience differ from your assumptions.
* This information has been reproduced from a brochure entitled, "Financial Aspects of Alpaca Ownership," which is published by the Alpaca Owner's and Breeder's Association (AOBA
