Table of Contents:
- Why Alpacas
- Alpacas – The Earth-Friendly Farm Animal
- The Alpaca Advantage
- Investment Information
- Who Buys Alpacas
- Supply & Demand – Alpaca Herd Growth
- Alpaca Value
- Capital Requirements to Start an Alpaca Farm
- Hands-On Alpaca Ownership
- Tax Advantages and other Financial Observations
- Methods of Financing Alpacas
- Creating an Alpaca Herd
- Alpaca Purchase Contracts
- How to Get Started with your Alpaca Farm
Alpacas have coexisted with humankind for thousands of years. The Incan civilization of the Andes Mountains in Peru elevated the alpaca to a central place in their society. The imperial Incas clothed themselves in garments made from alpaca and many of their religious ceremonies involved the animal. Museums throughout the Americas display textiles made from alpaca fiber.
The Spanish conquistadors failed to see the value of alpaca fiber, preferring the merino sheep of their native Spain. For a time, alpaca fiber was a well-kept secret. Beginning in the mid 1800′s, alpaca was rediscovered by Sir Titus Salt of London, England.
The newly industrialized English textile industry was at its zenith when Sir Titus began studying the unique properties of alpaca fleece. He discovered, for instance, that alpaca fiber was stronger than sheep’s wool and that its strength did not diminish with fineness of staple. The alpaca textiles he fashioned from the raw fleece were soft, lustrous, and they soon began making their mark across Europe. Today, the center of the alpaca textile industry is in Arequipa, Peru; yarn and other products made from alpaca are sold primarily in either Japan or Europe. Outside of their native South America, the number of alpacas found in other countries is extremely limited. In fact, 99 percent of the world’s approximately three million alpacas are found in Peru, Bolivia, and Chile.
Alpacas – The Earth-Friendly Farm Animal
Alpacas have been domesticated for more than 5,000 years. They are one of Mother Nature’s favorite farm animals. They are sensitive to their environment in every respect. The following physical attributes allow alpacas to maintain their harmony with our Mother Earth.
The alpaca’s feet are padded and leave even the most delicate terrain undamaged as it browses on native grasses. The alpaca is a modified ruminant with a three compartment stomach. It converts grass and hay to energy very efficiently, eating less than other farm animals. Its camelid ancestry allows the alpaca to thrive without consuming very much water, although an abundant, fresh water supply is necessary. The alpaca does not usually eat or destroy trees, preferring tender grasses which it does not pull up by the roots. South American Indians use alpaca dung for fuel and gardeners find the alpaca’s rich fertilizer perfect for growing fruits and vegetables. A herd of alpacas consolidates its feces in one or two spots in the pasture, thereby controlling the spread of parasites, and making it easy to collect and compost for fertilizer. An alpaca produces enough fleece each year to create several soft, warm sweaters for its owner’s comfort. This is the alpaca’s way of contributing to community energy conservation efforts.
The Alpaca Advantage
- Alpacas are safe; they don’t bite or butt. Even if they did, without incisors, horns, hoofs or claws, little harm can be done.
- Alpacas are small and easy to handle.
- Alpacas are useful: they produce fine and valuable fleece as well as make wonderful pets.
- Alpacas are intelligent, which makes them pleasant to be around and easy to train.
- Alpacas are beautiful, come in 22 colors, and are clean and pleasant to be near.
- Alpacas do not require butchering in order to be profitable.
- Alpacas do not require special shelter or care.
- Alpacas are considered disease-resistant animals, which lowers insurance and veterinarian costs.
- Alpacas are adaptable to varied habitat, successfully being raised from Australia to Alaska and from15,000 feet to sea level.
- Alpacas are rare outside of South America and cannot be mass produced.
- Alpacas require minimal fencing.
- Alpacas can be pastured at 5-10 per acre.
- Alpacas are easy to ship, which allow them to be traded across the country or around the world.
- Alpacas have a relatively long and trouble-free reproductive life span.
- Alpacas can be insured against loss.
Why do people in so many countries call alpacas “The world’s finest livestock business?” For any business asset to be valuable, it must possess certain qualities that make it desirable. Gold is scarce, real estate provides shelter, oil produces energy, bonds earn interest, stocks are supposed to increase in value, and diamonds symbolize love. Alpacas share many of these same attributes.
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 New York, Paris, Milan, and Tokyo. There are excellent profit opportunities and tax advantages available to alpaca breeders. Historically, the alpacas’ value has sustained ancient cultures, such as the Incas of Peru. Today, alpacas represent the primary source of income for millions of South Americans. History has validated the value of the alpaca.
Livestock has been a traditional representation of wealth for many cultures around the world, long before financial stocks were sold on the New York Stock Exchange. The richest families of ancient times counted their wealth by the size of their flocks of sheep or herds of cattle. Today, wealth as a result of livestock ownership is not as common, but opportunities do exist for profitable farms and ranches. Tending to a graceful herd of alpacas can be an exciting way to earn a source of revenue and live a rewarding lifestyle.
Since 1984, alpacas have appeared, almost simultaneously, in several countries where they have never been seen before. The U.S., Canada, Australia, New Zealand, England and many European countries have all acquired the foundation for national herds. There are even beginning herds in Japan and South Africa, among others. What makes this animal so desirable? The bottom line: alpacas can be both profitable and enjoyable.
Finally, alpacas are easy to transport, which makes it easy to move them from one location to another. They have a relatively long and trouble-free reproductive life span, and alpacas can be fully insured against loss.
Who Buys Alpacas
Alpaca breeders come from many walks of life. Increasingly, alpacas are becoming an important source of income for many people. Entire families are full-time alpaca breeders. Young couples with children might own three or four alpacas and enjoy caring for them. Retired couples, who have raised their kids, sold their business, and retired to the country, are often owners. The family whose members include a hand-spinner might own two or three animals for fiber production. Several breeders are veterinarians who have found the ownership of alpacas to be more rewarding than practicing veterinary medicine. Many herds are owned by families where one spouse has a city job, and the alpaca business is managed by the other on their acreage in the suburbs or the country. A large number of breeders are working couples who tend to their herd in the evening after work. There are even city dwellers who have discovered the option of boarding (or “agisting”) alpacas, thereby giving them an operational alpaca operation while still retaining an urban career. For all owners, alpacas offer a great way to diversify their financial portfolio with a commodity that is both rare and in demand worldwide.
There are few large ranches with over 500 alpacas, small ranches of only two or three alpacas, and everything in between. The average alpaca herd consists of about ten to twenty alpacas. Most herds start out small and grow to the size that fits the breeder’s ranch and financial goals.
Almost all breeders are in business for the long haul; they believe in the future of the industry. With the relatively small number of alpacas currently available, there will be an extended and steady demand for breeding stock to continue meeting the needs of our growing industry for many years.
It is important to recognize that alpaca ownership has inherent risks, as do all livestock and financial assets. You should talk to breeders to familiarize yourself with the risks as well as the rewards of alpaca ownership.
Supply & Demand – Alpaca Herd Growth
The market for alpacas has been moderated by the effects of relatively slow herd growth. As of early 2004, the total population of registered alpacas in North America accounts for about 50,000 in the United States and about 15,000 in Canada.
Supply will continue to be limited in the near future for a number of reasons:
- Alpacas reproduce slowly. A female generally breeds for the first time between 18-24 months of age, is pregnant for 11-12 months, and almost always only has one cria per year.
- Many breeders retain their offspring to build their herds
- The limited size of the national herds in each country outside of South America will restrain growth to a small degree.
- The U.S. alpaca registry is closed to further importation to protect our national herd, which will further moderate U.S. herd growth.
Meanwhile, demand for alpacas has increased dramatically every year since their introduction outside of South America (1984). Not only are there more breeders entering the alpaca market each year in established countries such as Canada, New Zealand, Australia and the U.S., but there are more countries worldwide also actively establishing alpaca herds. This growth is sure to continue as the alpaca gains international recognition.
Alpacas offer an outstanding choice for livestock ownership. They have long been known as the aristocrat of all ranch animals. Most of all, alpacas have a charismatic manner, they do very well on small acreage, and they produce a luxury product which is high in demand.
An alpaca rancher with a small herd on a small acreage can expect to harvest his animals’ fleeces and sell their offspring profitably. The value of alpaca fleece and finished products made from that fleece is the economic underpinning of the future market for 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 three to ten pounds of fleece a year. Alpaca ranchers sell their fleece in a variety of ways including raw fiber, washed and carded fiber, yarns, and finished products, with lucrative margins. Profits or fiber production vary based on each farm’s model for fiber sales.
The current alpaca industry is based on the sale quality breeding stock, which commands premium prices. Female alpacas usually begin breeding at between 15 months and 18 months of age, while most males can successfully impregnate (or “settle”) a female at about three years. The females produce one baby per year (twins are uncommon) during a reproductive life about 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. Breeders often prefer one alpaca color to another, however the parents’ color does not necessarily guarantee a cria of the same color. There are many accepted theories regarding alpaca color heritability, and more research is needed to further our understanding of this issue. Of more importance to most breeders is the overall physical soundness, or “conformation” of the animal. In addition to color, fleece, density, uniformity, fineness, luster and staple length will also affect value. Well-conformed alpacas with superior fleece characteristics sell for higher prices.
The range of value for females has remained fairly consistent during the two decades that alpacas have been available to the public in North America: generally between $12,000 and $25,000. Females with unique attributes have been known to sell for $50,000 or more. Proven, top-quality herd sires typically sell for $20,000-$50,000, and the highest quality males with unique characteristics or exceptional offspring on the ground have sold in excess of $150,000. (The current world record, set at auction in 2002, is $265,000).
Many breeders start with several breeding age females and perhaps one male. Other new breeders may elect to start with several young animals or a breeding pair. There is an approach suitable for your level of interest and financial position. Alpacas are much like diamonds. The market pays a premium for the finest examples of the breed, and a beauty is also in the eye of the beholder.
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 off-spring in your 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. Most breeders elect to sell all or some of the annual offspring production for practical reasons, such as recovering their initial cash flow, acreage and building limitations, and time constraints.
Alpacas are also fully insurable against theft and mortality. Insurance can be purchased for your stock regardless of age. Average insurance rates are 3.25% of the value of the animal, or $325 for every $10,000 of insurance.
Capital Requirements to Start an Alpaca Farm
Prices for shelter, fencing and labor vary widely based on geographic location, as well as individual needs and tastes. For example, some alpaca breeders will opt for a $500 carport structure as a shelter for their animals, whereas others might spend upwards of $100,000 or more for a state-of-the-art breeding facility and showplace. Additionally, fencing could add several thousand dollars to your budget. If you manage the herd yourself, you’ll require an inventory of halters, shears, toenail clippers, lead ropes, and other miscellaneous gear. These items would probably add $500 to your initial costs. Insurance is a consideration, and generally costs approximately 3.25% of the purchase price, paid each year in advance. If a person were to begin raising alpacas at his or her own ranch, a typically start-up budget might look like this (prices estimated based on typical costs in the U.S.A.):
|Acquisition of one pregnant female and one young female||$ 35,000|
|Insurance on animals, one year||$ 1,100|
|Small barn and fences||$ 30,000|
|One year’s feed||$ 300|
|Veterinarian and miscellaneous reserve||$ 1,100|
[Costs are rough estimates for comparison purposes only. Actual costs may be higher or lower than figures depicted, depending on a wide variety of factors such as geographic location, available pasture, climactic conditions, health of animals, etc.]
Hands-On Alpaca Ownership
There are essentially two ways to own alpacas. The first approach is to simply purchase the animals and begin raising them. The second approach is to purchase the animals and place them in the care of an established breeder. This arrangement for care and boarding of an animal on behalf of another is known as agistment. Under this method you, as owner, typically would still make the important decisions about care, breeding, sales, etc.
This discussion will focus on the owner-raised scenario. Many breeders will work with you to develop an analysis designed for your particular situation; however, you are encouraged to independently 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 breeders’ experiences.
The hands-on method of raising alpacas, as either a part- or full-time business, requires that the alpaca breeder own a small ranch or acreage. The property would need to be properly fenced and have a small barn or shelter. Many new owners already have outbuildings suitable for alpacas. The alpaca owner is presumed to supply the day-to-day labor
Many new buyers start with a breeding pair or two females (and purchase stud services). The financial returns are similar at different ownership levels, so don’t feel that you have to be a large ranch to participate.
Tax Advantages and other 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 off-setting your ordinary income from other sources with expenses from your ranching business (See Tax Consequences of Owning Alpacas.)
The financial return using the agisted approach, should you elect to board your animals, is also very good. There are breeders who would be happy to discuss agisting alpacas on behalf of prospective owners.
- 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.
- Financing terms are available from some breeders and range from a few months to two years or more.
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 experiences differ from your assumptions.
Methods of Financing Alpacas
Most alpacas are sold for cash. Many buyers convert other assets to purchase their first alpacas. Some people have a line of credit for investment purposes; others use their equity in real estate to secure funds.
Sunset Hills Farm Alpacas offers financing for your purchase. There are 2 financing arrangements:
Financing Option 1
- Purchase price $22,500
- Down payment 50% ($11,250)
- No interest charges if balance ($11,250) is paid within 90 days
Financing Option 2
- Purchase price $22,500
- Down payment 25% ($5,625)
- Payment terms up to 4 years at 5% interest.
Please call. We require purchasers to obtain insurance for the animals with any balance still owing.
Creating an Alpaca Herd
First, determine your goals for alpaca ownership. Would you like to own an inexpensive pair of gelding males for fiber production or as pets for you and your family? Are you going to be a full-time or part-time breeder? Will you invest in alpacas for current financial returns or are you going to build a herd toward the goal of being a full-time breeder? Once you’ve decided on your goal, the path to alpaca ownership will be more easily defined.
If you’re interested in acquiring a producing alpaca herd with immediate sales, you may want to consider a larger initial outlay. You would probably buy a number of pregnant females who would deliver a cash crop of crias immediately. This larger expenditure might also encourage you to become more involved in the industry and spend more time marketing your herd. Some breeders with larger herds have full-time ranch managers or hire additional labor to assist them with the day-to-day chores. However you choose to be involved, there is an “Alpaca Approach” suitable for you. The industry is young and innovative strategies abound. Very few assets have the potential to reproduce themselves every year as an alpaca does. Today’s smaller breeder can choose to be almost any size in the future. An owner who likes the return alpacas offer, or the lifestyle they provide, can choose any level of ownership.
Alpaca Purchase Contracts
Every purchaser should require a purchase contract when acquiring an alpaca. A typical contract will call for a veterinarian exam certifying the alpaca’s health at the time of purchase. Other clauses might warrant that a breeding male will, in fact, settle females and that he is not sterile as a condition of birth. A contract for purchase of an alpaca female will often warrant that she is anatomically complete and capable of producing live offspring.
Contracts will specify the financial terms involved and include small details such as who delivers the animals. It is important to know what happens if there is a future problem with the alpaca that you purchase. For instance, a young male could grow up to be sterile. This condition may not be known for one or two years after purchase. Most breeders will agree to replace the animal if this happens.
Contracts are important so that all the elements of a purchase can be accounted for. It is also very important to deal with a breeder of good reputation. Ask for references if you feel the need. You are making a large investment when you buy alpacas and it’s important that you feel good about it.
Many alpaca owners who have been involved in the alpaca lifestyle have found it both personally and financially rewarding. Please recognize, however, that owning alpacas involves significant financial risks, as does any business start-up. Your ultimate success will be determined by your own ability to market your animals: your fiber and finished goods: your employment of available resources within the alpaca industry: your communication skills: and your ability and willingness to provide top-notch customer service that results in a good reputation. Although this article discusses techniques that many people have used to make alpaca breeding a profitable business venture, it is, of course, impossible to guarantee the ultimate success of any business.
How to Get Started with your Alpaca Farm
The best way to learn about the joy of owning alpacas is to visit the farms of people who are already in the business. Alpaca breeders are friendly folks and they enjoy sharing their alpacas with the public. You will find that each breeder has his own individual style and method of operation. You can learn a little from each breeder and decide how you personally would like to participate in the alpaca industry and at what level.
We recommend that you join our Alpaca Owners and Breeders Association, or AOBA as it is generally known. Farm memberships which include voting privileges and affiliate memberships (without voting privileges) are available. Each member receives a subscription to Alpacas magazine, a bi-monthly newsletter, a membership directory, access to the AOBA library, and many other breeder support services. AOBA’s membership has grown dramatically.
Each year, AOBA holds a national convention, which includes halter and performance class shows. There are many educational opportunities provided at these events, and best of all, you’ll make new friends who share your enthusiasm for alpacas.
You should read Alpacas magazine; you will gain insights into the alpaca industry and many breeders advertise alpacas for sale in its pages. AOBA also has a library containing perhaps the most information about alpacas in North America.
Alpaca halter and performance class shows are being held across the country. Breeder enthusiasm for the shows creates additional show venues each year. There will be a show near you sometime this year — plan to attend.
Finally, AOBA has produced several informative offerings. These include an alpaca video, a color brochure and a fiber brochure. Please call or write for information to begin your adventure!