Alpaca farming raises more than hair
Pssst, how would you like to rub
noses with your next investment?
Nearly 2,000 Americans have answered, "I do," opening
their acreage to alpaca farming.
Alpacas are members of the camel family, and closely
resemble their llama cousins. However, this gentle animal's bone
structure makes it useless as a pack animal and, outside Peru, no
one particularly wants to dine on its meat.
The five-foot mammal's value lies in its soft, luxurious
fleece, used in everything from garments to teddy bears.
Most of those raising these exotic livestock resemble
Chuck and Helen Stewart. She was a pediatrician, in Larkspur, Colorado;
he served as her office manager.
When the Stewarts first glimpsed a shaggy alpaca on
The Today Show, they saw it as a loveable pet. But at prices
equaling a year's college tuition, this wasn't a puppy-sized purchase.
Affordability lay in starting a breeding business.
His accountant, however, knew nothing about the exotic
livestock industry. His attorney was a small-farm ostrich rancher
who told tales of expensive investments that stuck their heads in
buckets and died too stupid to lift their heads from the water.
His banker also admitted ignorance, but was willing
to front the capital in exchange for everything Stewart owned as
"There are millions of pigs, cattle and horses.
An alpaca sets apart because of the initial cost. People who go
into this must first commit the funds, then make the money,"
says fellow farmer Ed Friedman, an ex-attorney and real estate developer
who now divides his time between a 52-head alpaca farm and his position
as an adjunct faculty member who teaches entrepreneurship at Penn
"There's something innate in humans that insists
there is a way to make big money fast," says Bill Staton, chairman
of Staton Financial Advisers LLC in Charlotte, N.C., and host of
a seminar titled Wealth Building Strategies That Work.
"I'm not saying it's a scheme -- somebody can
make money at it. But it's like Michael Jordan and basketball. He
can't explain why he's such a profound basketball player. When you
get out of your area of expertise, it spells trouble."
"This is an investment. You don't make it with
money to pay the mortgage," Stewart warns.
To buck odds that have sent country folk to their
financial ruin, city investors need a solid business plan, five
years' of capital and a responsible mentor.
Profit: The good news
Alpaca profits today lie in breeding. Investors
who want a quick return buy a pregnant female for $20,000, then
sell her baby for $10,000 to other newcomers to the industry.
Those building more slowly hold female babies until
they, too, are pregnant and worth their initial purchase price.
The return on investment ranges from Stewart's 50 percent annually
to 10 percent for those unfortunates with scrubby stock.
Others purchase an alpaca, then pay someone boarding
fees to raise it. This option, Friedman says, reaps the smallest
All this breeding is leading toward a fleece market
-- but not for 20 to 40 years, Stewart estimates. As secretary of
the Alpaca Owners and Breeders Association, he points to literature
claiming ranchers sell their fleece to artisans for $2 to $4 an
ounce. Fiber thickness counts also influence price: get it too coarse
and the price starts to slide.
The real hurdle, alpaca farmers say, is that neither
the United States nor Canada has a large mill that commercially
processes alpaca fiber from hair to sweater. That leaves domestic
demand to a small cottage industry.
Shared shearing times flood this tiny market, driving
the price down. Some alpaca farmers work around this by spinning
their own fibers, knitting the sweaters and marketing the apparel
on the Internet.
Not for the faint-hearted
Alpaca breeding stock costs are dizzying. An average pregnant female
costs $22,000, according to the AOBA. Some sell as low as $12,500;
superior stock commands $40,000.
Males retail between $7,500 and $25,000, although
the highest quality studs have sold for more than $100,000. Prudent
farmers might assume they can save by shelling out $1,000 to $3,000
for stud fees, but alpacas are social mammals. Solo living stresses
them out until they die.
Ostrich veterans don't blink at such antes. Their
industry saw breeding stock go from $70,000 a pair to $2,500 in
a few years. But Stewart claims the alpaca association has licked
this deflation nightmare.
For one, it introduced an animal registry and closed
it to further importation to protect U.S. herd growth. This approach
sidesteps fraud, which also tainted ostrich pioneers, by listing
blood type and DNA data to ensure top-notch breeding claims are
exactly what they purport to be, Friedman points out.
Second, alpacas reproduce slowly.
Currently, North America harbors 30,000 alpacas, 18,000
of which are females. The portion of females younger than the 18-month-old
breeding age brings the quantity of potential mamas to 14,000. They'll
produce 50 percent males and 50 percent females, which can't reproduce
"We're not looking at mass production here,"
Other ongoing costs include:
Land: You need
five acres to support 20 alpacas. The good news: they create a
communal dung pile, so sanitation efforts are concentrated.
only needed a rake, shovel, water buckets and wheelbarrow, but
he couldn't resist purchasing a truck, too. Most farmers need
a barn and fencing -- but the upgrade temptation meant Friedman
sunk $165,000 into his structures. And even the stingiest investor
pays for the convenience of lead ropes, harnesses and toenail
clippers. AOBA estimates $12,500 in startup costs here.
eat grass or hay to the tune of one bale per adult every eight
days. A special alpaca feed containing vitamins, minerals and
protein pellets runs $300 per year per animal.
Friedman's bills set him back $25 per alpaca per month,
including rabies vaccinations and deworming treatments. Stewart,
on the other hand, budgets $35 per animal annually -- a figure
that includes special requests to help with birthing complications.
Unfortunately, alpaca anatomy isn't a required course in this
country, so many farmers find the local vet is almost as ignorant
as they. Speaking of expertise, shearing can require a professional
touch from South American practitioners, if you can find one.
that cover full mortality cost between 1 percent and 3.3 percent
of an alpaca's value, paid up front annually.
aside 8 percent to 10 percent of your budget for marketing purposes.
Without brochures, Internet sites and hosted visits, you won't
sell the livestock.
dues run $125 annually, annual conference fees and travel costs
can bite your wallet anywhere from $150 to $2,000. Attendance,
however, increases the knowledge you need to survive the introductory
Friedman estimates the average alpaca investor can
break into the field for between $80,000 and $100,000. The risks
include the fact that the animals can injure themselves or die unexpectedly,
and a defect plummets a breeder's price value.
Stewart was forced to neuter one male and sell it
as a fiber animal for $1,000.
"Without this fault, he was a $30,000 stud,"
Taking care of the taxes
Never invest in alpacas solely as a tax shelter, Friedman advises.
But certainly expect to use this business avenue to write off expenses.
Farm losses offset income from other areas. An $180,000
loss in 2000 translated into a $65,000 tax shelter for Friedman.
Alpaca farmers also may appreciate the animals over
five years, and the breeding stock enjoys a lower 20 percent long-term
capital gains treatment.
Or, under section 179, you may write off newly acquired
equipment that you put to use in 2001 up to $24,000. The truly savvy
trade alpacas with a colleague without any tax implications, similar
to a real estate 1031 exchange.
"Helen and I have been extremely successful,"
Stewart admits. "Part of it is luck, and the other part is
we treat it as a business that takes work. You don't get rich quick
on a legitimate business enterprise.
"You just have more fun with this one."
-- Posted: Sept. 5, 2001