ALPACA FARMING
A report prepared during Spring 3-week, 2003 term of Hiram
College by April Aten, Jessica Bennett, Elliot Brenner, Laura
Goetz, Stephen Herrage, Kristopher Justice, Daniel Scott and Paul
Watler under the supervision of Professor Ugur Aker
This report can be accessed at http://home.hiram.edu/www/econ
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INTRODUCTION
“Why raise alpacas?” To answer that we must first examine all aspects of the
animal itself, in order to realize just how many benefits there really are.
Alpacas, similar to llamas, are members of the camelid family. They are thought
to be descendents of the wild vicuña. It is hypothesized that alpacas were first
domesticated in the Lake Titicaca region of southern Peru.1 According to Dougherty
Creek Farm website, Andean Indians first domesticated alpacas over 5,000 years ago.
The Incas further developed alpaca husbandry in the 11th and 12th century.2 Peru
maintains the world’s largest population of alpacas, numbering around 2.5 million, while
the United States currently has about 45,000. As of May 1, 2003, there were only 30
registered animals in Peru, and 44,930 in the United States.3
There are two different breeds of alpaca: huacaya and suri. The predominant
difference between the two breeds is the variety in the animals’ fleece. Huacaya alpacas,
the more common of the two breeds,4 produce fleece that has a strong crimp to it, which
results in the animals’ fluffy appearance. Suri fleece has very little crimp. Therefore,
instead of a soft and fluffy appearance, suri alpaca fleece hangs down in pencil-like
dreads that cover the animal from head to toe.5 Although the two types of fleece are very
different from each other, both are used in the manufacture of alpaca fleece products.
1
Available: http://www.alpacaregistry.net/journal/win98j-11.html [2003, May 12]
Available: http://www.alpacaplanet.com/alpacas_FAQ.html [2003, May 12].
3
Available: http://alpacaregistry.net/data6.html#111 [2003, May 12]
4
“The suri is very rare, with a worldwide ratio of huacayas to suris at about 98% to 2%.” Alpaca Owners
and Breeders Association, Inc. Farm and Ranch Guide 2002-2003. p. 15.
5
Alpaca Owners and Breeders Association, Inc. Farm and Ranch Guide 2002-2003. p. 15.
2
1
Alpacas are very easy to care for. According to Linda K. Davis, “Of all livestock
you can own, the alpaca is one of the easiest and most inexpensive to maintain.”6 On
average, a farmer can have between five to ten animals living on a single acre of
farmland. Due to centuries of living in the Andean mountain ranges, alpacas have
developed a strong resistance to cold weather, and therefore are quite capable of
surviving winters with only a sturdy three-sided shelter.7 In warm weather, they require
even less shelter, oftentimes, a pasture containing trees, known as “silvo” pasture will
provide adequate shelter from sun and rain. Because alpacas are passive animals, there
should be no concern for personal safety when first encountering the animals. There is
no need for heavy fences, such as with horse and cattle farms, because alpacas will not
challenge their boundaries. In fact, fencing is only used to keep out local predators and to
keep the alpacas from wandering aimlessly.
Alpacas are grazing animals, and generally
any non-fertilized grass is suitable for their consumption. However, because American
pastures lack the nutrient enriched volcanic ash found in South America, it is advisable to
feed the animals a small amount of nutrient fortified grain in order to maintain their
health. Alpacas, however, unlike horses and many other animals, will only eat as much
as they are hungry for. A typical alpaca will only consume about half a pound of grain
per day.
Alpacas usually live about 15 to 20 years on American farms; in their native
habitat of Peru, the animal usually only survives about eight years. The rocky terrain in
their natural habitat wears down alpacas’ teeth, but as long as the teeth grow
6
Davis, L. K. Alpaca care and diet. In Alpaca.com [Online] Available:
http://www.alpacanet.com/alpacacareanddiet.cfm [2003, May 13]
7
Davis, L. K. Alpaca care and diet. In Alpaca.com [Online] Available:
http://www.alpacanet.com/alpacacareanddiet.cfm [2003, May 13]
2
continuously, this is not a problem. Once the teeth cease to grow after eight years, they
are ground down permanently, and the alpaca dies from starvation. In the United States,
farmers must manually file their animals’ teeth down to prevent them from becoming too
long. In captivity, even when the animal does lose its teeth, it can still survive and lead a
healthy life.8
Alpacas have lived independent of human care for thousands of years, and
therefore require very little human intervention. Rather than being beneficial for the
animals, constant supervision only causes the alpacas additional stress. Alpacas also do
not like change; they prefer a simple, consistent environment, free from predators and
other distractions. Because of their hardy background, alpacas are very resilient to most
health concerns. Stress is the leading health problem for American alpacas. Local
wildlife, traffic, shearing, and other forms of intervention in their daily routines can cause
the animal to develop ulcers. In order to reduce stress in particularly edgy animals, many
farmers choose to tranquilize their animals during shearing. Aside from monthly
worming shots and a yearly inoculation against diseases, the only things a farmer needs
to worry about are clipping the animals’ toenails (every 6 months to a year) and filing the
animals’ teeth. Both of these can be easily taken care of when the animal receives its
yearly shearing.
There are 22 different colors of alpaca fiber, ranging from white to black, with
many shades of gray and brown in between. Peruvians prefer white fleece, because they
are able to dye it a multitude of colors, which is hard to do with darker fleece.
Conversely, American farmers are generally more appreciative of the darker, more
8
On the Stachowski farm, there was an 18-year-old male with no teeth, who was still healthy. It chewed its
grain by “gumming” the food until it was soft enough to swallow. Dr. Anthony Stachowski interview
(4/29/03)
3
natural colors. Alpaca fleece is judged based on micron count and crimp. The micron
count is the number that dictates the thickness of the animal’s fleece. The ideal micron
count is 19.9 Occasionally an animal’s micron count will be too low, resulting in a fleece
that is too fine for weaving. In this case, the farmer will breed it with an animal with a
higher count to try to average the microns. Crimp, the waviness of the animal’s fleece, is
the other evaluation basis of alpaca fleece. It is observed by spreading the fleece as close
to the skin as possible and looking for a zigzag texture. As with the micron count,
animals are intentionally bred to have a higher crimp.
The two main institutions for alpaca farmers in the United States are the Alpaca
Registry, Inc. (ARI)10 and The Alpaca Owners and Breeders Association (AOBA).11
The ARI is “a database housing the genealogy, blood typing and ownership records of
alpacas in North America and those of a few alpacas outside this area.”12 All animals in
the United States that are bred for sale are registered with the ARI. In 1999, the ARI
banned imports of alpacas to its registry. This has allowed the American alpaca market
to grow independently, with no outside competitors from other countries. If an alpaca is
presented at shows, it must be registered.
The ARI was formed in 1988 and almost all of the North American alpacas are
registered with it. The purpose of the Registry is to protect the existing gene pool from
cross breeding with llamas, guanacos and vicuñas. The ARI office in Montana issues a
pedigree certification after confirming the claimed parentage of the newborn through a
9
Dr. Anthony Stachowski interview (4/29/03).
Available: http://www.alpacaregistry.net/ [2003, May 12].
11
Available: http://www.alpacainfo.com/ [2003, May 12].
12
Available: http://www.alpacaregistry.net/ [2003, May 12].
10
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DNA test conducted in University of California Davis laboratories.13 The microchip
inserted into each alpaca carries all this information.
The AOBA, on the other hand, is an owner/breeder run organization, intent on
spreading information on alpaca farming and breeding, while helping to share important
data on alpacas amongst all owners. The AOBA publishes Alpacas Magazine five times
a year, which includes four quarterly issues plus a special Herd Sire edition.14
The information for this paper was appropriated from many sources, most of
which can be found on the Internet. The time we spent on this three-week course also
involved visiting two farms and conducting interviews with the proprietors. The first
alpaca farm was C R Alpacas, Inc. in Chagrin Falls, Ohio, owned and operated by Cheryl
and Ross Palmentera (http://www.c-r-alpacas.com/). The second farm was Stachowski’s
Inc., in Mantua, Ohio (http://www.alpacaworld.com/). Dr. Anthony Stachowski, the
manager, was one of the first alpaca farmers in the United States of America. The class
owes them a great many thanks for their patience with our queries and the wealth of
information they so willingly provided us.
13
Alpaca Owners and Breeders Association, Inc. Farm and Ranch Guide: 2002-2003, p. 10. Hoffman, E.
History of Alpaca Registry [Online]. Available: http://www.alpacaregistry.net/history.html [2003, May 12].
14
Available: http://www.alpacainfo.com/newsite/magazine/index.html [2003, May 12].
5
BREEDING
Breeding is an important aspect to any alpaca farming business. It allows for the
reproduction of alpacas and the sale of newborns for profit. Around 15 to 18 months of
age, a female (dam) will be ready to mate. Males (sires) are generally ready to breed
around 28 to 36 months.15
There are two types of breeding methods used to impregnate a female alpaca: pen
and pasture. Pen breeding involves both a male and female enclosed in a small area.
“The male makes a very distinctive ‘orgling’ sound while they mate, which can last
anywhere from about five minutes to about 30 minutes or more.” Male alpacas do not
ejaculate at climax during intercourse; they are “dribble inseminators,” meaning that they
have a “near continuous stream of semen introduced to the female.”16 Often, the owner
will allow this scenario to be played out several times to make certain the female has
become pregnant. One benefit of pen breeding, as pointed out by Mrs. Palmentera, is that
an already pregnant female will attack a male if he is introduced into the pen, thus
verifying that she is pregnant. This type of behavior by the female is called a “spit off.”17
The other form of breeding is pasture breeding. This is where one male, a
herdsire, is placed in a field with all females, for a set period of time. “The herdsire for
any breeding program,” states author Mike Safley, an alpaca expert, “is the single most
important determinant of overall herd quality. It’s true for cattle, sheep, horses, or any
other breed.”18 The selected male impregnates individual females while overseeing the
15
Alpaca.com L.L.C. and AlpacaNet L.L.C. Available: http://www.alpaca.com [2003, May 12].
Alpaca Owners and Breeders Association, Farm and Ranch Guide, 2002-2003, p. 10.
17
The Alpaca Dictionary. Hayne Alpacas [Online] Available: http://www.haynealpacas.co.uk/dictionary.php [2003, May 12].
18
Safley, M. Alpaca Herdsire Selection: The Art and the Science. Northwest Alpacas [Online] Available:
http://www.alpacas.com/AlpacaLibrary/AlpacaHerdsireSelection.aspx [2003, May 12].
16
6
herd. There are some exceptions to this, however. Mr. Palmentera, during his interview,
stated that if no male were present in the herd, a dominant female would superintend and
assert her leadership.
An alpaca female is ready to breed for the first time when she reaches 65% of her
predicted total body weight.19 The gestation period for a pregnant female is anywhere
between 11 and 12 months.
The offspring produced is called a cria which quickly
adapts to its surroundings. “The newborn cria is usually standing and nursing within 90
minutes of birth, and will continue to nurse for approximately five to six months until
weaned.”20 A healthy cria will weigh anywhere between 10 and 15 pounds at birth.
To determine whether a female alpaca is pregnant, an ultrasound is used. This
also allows the owner to monitor the pregnancy and determine if any defects will be
present in the offspring. Female alpacas prefer to give birth alone. “An alpaca birth
usually occurs in the morning, often soon after sunrise,” states Bluebird Hills Farm,
owned and operated by Tim and Laurel Shouvlin and located in Springfield, Ohio. “We
have had some born in early afternoon, but never in the evening. It is felt that births that
come later in the day may indicate some sort of difficulty. Prolonged labor may require
human intervention to reposition the cria.”21 After birth, crias are weaned from their
mother quickly and put into grazing pastures with other alpacas who are similar in age.22
Alpaca.com L.L.C. and AlpacaNet L.L.C., Available: http://www.alpaca.com [2003, May 12].
Alpaca Owners and Breeders Association, Farm and Ranch Guide, 2002-2003, p. 10.
21
Bluebird Hills Farm. [Online]. Available: http://www.bluebirdhills.com [2003, May 13].
22
Twins are not common among alpacas. “The incidence of twinning amongst alpacas has been quoted by
veterinarian Dr. Julio Sumar, internationally recognized Peruvian camelid expert, as being approximately 1
in every 50,000 live births.” Australian Alpaca Network. Available: http://www.alpaca.net.au [2003, May
13].
19
20
7
Females can propagate for up to 15 years. Many farmers choose to breed a
female for most of her life. “The time between delivery and re-breeding for the mom is
usually only between two to three weeks.”23
A premature cria requires much attention either from the owners or a veterinarian
to ensure that it will live. Premature offspring are generally characterized as
underweight, and their weight must be stabilized in order to ensure survival. According
to the Alpacas of Colorado website, certain physical factors should be examined to make
certain that a cria is not premature. The following is a description of what should be
looked for if a cria is born prematurely:
Births a full month before the 335 [day delivery] date are scary. At this 300 day
date [a month premature], the crias have not developed full term body mass, the
lungs have not matured (surfactant issues), the tendons have not tightened up, the
cardiovascular/cardiopulmonary system are in full fetal stage and neurologically
they just do not "seem right". Other prematurity signs are floppy ears, failure of
erupted teeth and weak suckling reflexes, inability to regulate homeostasis
(regulation) of body temperature, blood glucose levels and other systems.
Extreme intervention will be necessary to save a cria born a full month early - but
farms and vets have done it! These early births are generally dangerous for the
crias, but not so much for the dams.24
23
Alpaca Owners and Breeders Association, Farm and Ranch Guide, 2002-2003, p. 10.
Cameron, T. and Hull, S. Alpaca gestation lengths. Phantom Canyon Alpaca Farm. [Online] Available:
http://www.alpaca-farm.com/alpaca-articles.htm#berserk [2003, May 12].
24
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Alpacas with genetic defects are typically not bred in order to make certain that
any negative traits are not passed on to the next generation. Some defects include fused
ears, as seen at the Stachowski farm, and blue window-paned eyes, which signifies that
the animal is a possible carrier of deafness or blindness, as explained by the Palmenteras.
Chas Brooke of MileEnd Alpacas Farm in England reports that,
[t]here are three ways of selecting alpacas for breeding. The most common is on
the basis of phenotype or look. The second is for selection based on pedigree and
an analysis of the ancestry. The final option is to progeny test or make selection
decisions based on the dam or sire's production over many breedings. Often parts
of all three will be used.25
In these instances, the owner will examine all three of these options in order to ensure
that the offspring will be defect free. Despite these examples of possible genetic defects,
alpacas have one of the lowest rates of birth deficiency amongst all pack animals.
Other options for breeding, including artificial insemination and embryo
transplant, have been forbidden by the Alpaca Registry, Inc. (ARI) to protect the market
value of alpacas.26 Artificial insemination is not productive with alpacas because
collecting semen from alpaca males yields about 5% as much as other livestock and is not
much better than natural breeding. Collecting eggs from females also yields low returns.
The surgical procedure harms the female’s chances to conceive in the future. All of these
constraints imply severe restrictions on sudden increase of the alpaca population.
25
Breeding and Genetics: Selection. MileEnd Alpacas and Classical Alpacas. [Online] Available:
http://www.alpaca-uk.co.uk/bloodcounts2.html [2003, May 12].
26
Hoffman, E. History of Alpaca Registry The Alpaca Registry [Online]. Available:
http://www.alpacaregistry.net/history.html [2003, May 12].
9
As stated by the ARI, “mass production techniques are difficult, if not impossible,
due to the physical characteristics of the alpaca. More importantly, the Registry will not
recognize any animals that are not produced naturally.”27 Until 1999 herds in the United
States grew not only by breeding but also by imports. In 1998, 80% of the members of
the ARI voted in favor of having both the mother and the father of the newborn cria
known in order to have an alpaca registered. Since 1999, importation has stopped
because imported alpacas do not have the required records. Without the registry papers,
the value of the imported alpacas plummeted. Importers’ efforts to establish a new
registry were unsuccessful.
27
The Alpaca Registry. [Online] http://www.alpacaregistry.net/ [2003, May 12].
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COSTS
Alpaca farming is a very economical business. However, it does require the
consideration of a great number of initial and enduring costs for maintenance and
continuation. In order to begin a business, core input costs include infrastructure, labor
and feed, advertising, veterinary and medicinal expenses.
The first obstacle to starting an alpaca farm is the purchase of the land and its
infrastructure. These costs include the initial land purchase, a barn, fenced areas,
warehouses, and any other buildings or property necessary for successful alpaca farming.
The Palmenteras bought their land within the last few years at $10,000 per acre. Of
course, land in more rural areas would have been cheaper; for instance, land in
Huntsburg, Ohio is about $3,000 per acre. The Palmenteras have eight to ten fenced
acres and a barn, which they devote to their alpacas.28
According to the Alpaca Owners and Breeders Association, Inc.29 barn and fences
should cost around $12,000 for a herd of 15 to 20 alpacas. It takes approximately one
acre of land for eight to ten alpacas to live comfortably. In order to mitigate the land
costs for a new farm, many farmers start on land they already own and expand to allow
for more effective farming. At the Stachowski farm, new alpaca farmers explained that
their motivation for starting a business was to utilize vacant land on their property in
order to make additional profit. Furthermore, other initial costs one must consider when
starting an alpaca business are property taxes and utilities. If, when an alpaca farming
business is started on a piece of land, the value of this land increases, tax considerations
28
Palmentera interview (4/26/03).
Alpaca Owners and Breeders Association, Inc. Alpacas: Financial aspects of Alpaca ownership, (Estes
Park, CO: 2001), p. 6.
29
11
must be taken into account. The greater the value of the property, the higher the property
tax will be.
After the initial costs, the operational expenses, such as the feed for the alpacas,
must be considered. Food costs for alpacas include simply the purchase of grains, as a
majority of the alpaca food source is the grass found in their pastures. On average, the C
R Alpacas farm pays about $8 per day to feed 30 alpacas in the winter. This price is then
reduced during the summer; as there will be more grazing land and open pasture
available. Alpacas eat an average of one half pound of grain a day. Alpaca feed costs an
average of $10 for a 50-pound bag.
The Stachowski alpaca farm can provide care and attention to all of their 400
animals with only two employees. These workers are responsible for checking the
animals for injuries, providing them with food and water, and monitoring the progress of
pregnant females. Stachowski’s farm also does not have veterinary expenses, since Dr.
Stachowski is a licensed veterinarian. C R Alpacas explained that they pay to have their
animals sheared, adding an expense of $20 per animal. Additionally, they must seek the
services of a veterinarian to help care for sick animals and to manage prescription needs.
One of the farm owners we interviewed receives a salary of $180,000 per year, while the
other farm chooses not to pay themselves a salary.
Advertising provides a means for prospective or current farmers to become aware
of a farm’s business, thus creating a greater market for their product. Through
advertising, farms are able to attract new siring prospects and customers interested in
buying animals and fleece. According to Mr. and Mrs. Palmentera, this advertising is
accomplished most effectively and inexpensively through word of mouth and personal
12
testimony of their clients. They have, however, spent as much as $25,000 per year for
expenses associated with advertising.30
The most expensive and effective means of advertising is through participation in
regional and national alpaca shows. Farmers attend shows to network with other farmers
and to attempt to win awards for their animals, thus increasing the value of the alpacas,
and learning how to improve their farms and business. The expenses involved in such an
endeavor includes transportation of the alpacas and people, registration costs, stall rental,
and sponsorship. On average, registration fees would cost about $25, stall rental for two
to three animals about $150, and corporate sponsorship about $1000 to $1500. For
transportation, both farms we visited had very large RV’s, and Stachowski’s farm had
two trailers to transport the animals. Mr. Palmentera has flown to a show, while his
animals were transported by other means. He also stated that one of the greatest costs for
a show is just getting there.
According to Charles and Helen Stewart, two alpaca farmers, “Much of this
[advertising] is by word of mouth or on the internet. Breeders can advertise in Alpacas,
the association’s quarterly magazine… and some show their animals in the growing
number of alpaca exhibitions around the country.”31 The Stachowski farm pays $15,000
per issue to advertise in this magazine.32 Another advertising cost is maintaining a
website. Both farms have websites and both stated that they spent a great deal of time
and money updating and operating their websites. Additionally, the licensing of alpacas
is expensive, but necessary for owners to enter their animals in show and competition.
All alpacas must have some form of permanent identification to participate in shows.
30
Palmentera interview (5/7/03).
Long, William R. “Running with the Alpacas,” New York Times. 09/19/98, Vol. 148, Issue 51285, p. C1.
32
Stachowski interview (5/7/03).
31
13
Acceptable forms of identification include tags in the ear or a microchip implanted under
the scalp of the animal.
There is also a sizable cost involved in maintaining the health and well-being of
the animals. Care that must be provided includes bedding, nail clippings, monthly
worming, shot updates, and teeth grinding. Typically, either straw or limestone screening
is used as bedding. Straw costs about two dollars per bale, while 15 tons of limestone
screening costs $220. The greatest cost for the upkeep of alpacas, however, is veterinary
bills. At Stachowski’s farm, animals are wormed once a month at a price of one to four
dollars per shot.33 They are also given shots to help prevent illness.
If one cannot care for his own alpaca, there are boarding services offered to
owners which cost between two to three dollars per day for the animal to be boarded and
cared for on another farm. Farmers must also mow their fields to prevent weeds from
growing and choking the grass. Stachowski’s farm owns a golf cart to help access all of
their fields with food and water, and to provide the animals with quick access to medical
help if necessary.
Frequently, however, the greatest cost of establishing a farm is the cost of the
animal itself. The price of the animal depends on the breed, the definition of the spine,
the type and color of fleece, and other aspects of health, bloodlines, show victories, and
the animal’s general well-being. For many who are starting a new farm, alpacas are sold
in a package deal at a reduced cost to ease the initial financial strain. The first alpacas
imported into the United States cost between $5,000 and $6,000 to purchase. Chilean
alpacas, however, cost a mere $3,000. Despite the growth of the market and increased
interest since 1984, when the United States first allowed the import of alpacas, a female
33
Stachowski interview (5/7/03).
14
alpaca has maintained an average purchase price of about $15,000. Currently, a pregnant
female costs approximately $20,000 to 25,000 for purchase, and some high-quality
pedigree animals have been purchased at prices up to over $100,000. Typically, a
pregnant female and a young female can be purchased for $40,000.34 The cost of alpacas
is so high because they are incredibly rare, with only 45,000 animals available in the
United States in 2003.
Another reason that the price of alpacas is so high is due to the ban of new
imports to the Alpaca Registry, Inc. Since the ban was implemented in 1999, the price of
alpacas has climbed by 15 to 20%. Newly imported animals were refused entry out of
fear of hoof and mouth disease and because the price of the imported animals was
depressing the market for domestic animals. Prior to the ban, alpacas could be imported
from both Peru and Bolivia, whereas neither country is now allowed to export alpacas to
the United States. Thus, because of the ban of alpaca imports, the alpaca market is very
stable and controlled. The closure of the registry to imports has prevented market
dilution, but has also prevented the market forces from occurring naturally. With the
supply of new animals cut, the price of alpacas sold after the ban increased sharply.
ARI’s ban, enacted after the vote of alpaca breeders, was done in order to attempt to
manipulate the price of alpacas by removing the low cost animals from the market.
United States alpaca owners were able to eliminate their only true source of competition.
Alpaca farming is, therefore, not a free trade market.
These extreme costs make one wonder what the consequences and methods of
prevention for the loss of an alpaca might be. A common fear is that of injury or death of
34
Alpaca Owners and Breeders Association, Inc. Alpacas: Financial aspects of Alpaca ownership, (Estes
Park, CO: 2001), p. 6.
15
alpacas by local wildlife. The Palmenteras have yet to lose an animal to local predators.
In fact, they take no real precautions to prevent it. Instead, they choose to let the animals
act as their own sentries. When the herd is grazing, one animal is constantly on the look
out for predators. If and when it sees something, it emits a warning sound, which all the
other animals recreate as they huddle together. This is enough to keep the animals safe.
At the Stachowski farm, they have previously had issues with their neighbors’ dogs
aggravating the alpacas. The farm, as a response purchased guard dogs for their pastures,
installed electric fences, and purchased guns to defend the alpacas if needed. The
animal’s only real line of physical defense is the razor sharp teeth possessed by the
males. However, these teeth are removed on the Palmentera’s farm, to avoid
accidents. Obviously though, due to the vast costs tied with raising alpacas, optimum
protection of the animals is desirable for alpaca owners. To further alleviate the fear of
injury or death to one’s animals, alpacas can be insured at a rate of 3.3% of their purchase
price per year.
Both farms attempt to minimize their costs in many ways. C R Alpacas originally
boarded their animals at another farm, but as their herd grew, the costs associated with
boarding the animals grew as well. When the savings from tending alpacas on their own
land became substantial, they purchased a farm of their own and began to raise the
animals themselves. The Palmenteras only hire employees when they need them. They
have also decided to self-insure their animals instead of paying an insurance company for
a policy.
At the Stachowski’s farm, only if the animals really need to be sedated, do they
tranquilize them for shearing. This allows for savings in terms of medical and veterinary
16
bills. Additionally, many of their alpacas live in silvo fields, which further cuts costs by
providing natural shelter. Because alpacas do not need constant supervision, the
Stachowski farm also does not keep employees on the farm at all times. They also place
wooden grates across the hay trough to help prevent the animals from wasting the food.
Each of these approaches to farming helps the farms to minimize their costs in the hopes
of further increasing their profits.
17
REVENUES
Alpacas are a huge monetary investment; preserving their health and happiness
becomes extremely important. Due to the extended life span of American alpacas, the
animals are able to produce more fleece and offspring, increasing the revenue for the
farmer. Farmers are also able to increase the value of an alpaca by entering it into
shows. Once an alpaca has taken a top place in a competition, the alpaca’s value
increases. Breeders covet the bloodline of show winners, because any offspring sired by
this champion should, in theory, be champions also. This offspring can then be sold at
higher prices, yielding greater profit to the original owner.
The main income from alpaca farming comes from the sale and breeding of the
animals. The amount of money made in alpaca sales can be tremendous. For example, at
a recent auction held in Medina County, Ohio, an alpaca farm grossed approximately
$1.9 million in four hours by selling 71 alpacas.35 That is an average of $27,000 per
animal. Female alpaca prices can fluctuate between $10,000 and $100,000, while an
average female alpaca is generally sold for $20, 000 - $25,000. Male alpacas range in
price from $500 to $256,000.
The low priced males are often sold as pets to families or to spinners for their
fleece. Siring is also extremely profitable, with the price averaging $1,500 to $10,000 per
pregnancy. Typically, a male can be sired up to 3 times a day. Breeding alpacas is a very
regular business because the females have an average of one cria per year and can be bred
as soon as three weeks after the birth of the last cria.
35
Cheryl and Ross Palmentera interview (4/26/03).
18
The value of alpacas is also protected due to the difficulties associated with
artificial reproduction. It is very difficult and very expensive to collect a small amount of
semen to conduct artificial insemination. For females, it is almost impossible to harvest
eggs without causing permanent damage to the donating animal. In most cases, the
female will become sterile after an egg harvesting procedure, destroying any value she
might have. It is apparent, therefore, that artificial reproduction methods are not effective
in alpacas, thus protecting the value of rare breeds.
Another source of revenue for an alpaca farm is the sale of the fleece. Alpaca
fleece is very desirable for the production of clothes and other products. Money made
from the sale of fleece generally covers the cost of the upkeep, negating any profit from
the wool. On average, a suri alpaca with high fleece quality is more expensive than those
of the huacaya family. Alpacas generally produce about 6 pounds of wool per year,
although a prized male on C R Alpacas farm produces 14 pounds annually.36 The price
of fleece depends on the thickness of the coat and micron count of the wool.
Sheared fleece packaged from one farm is combined with that from other farms
and is collectively sent to Peru for processing. The prime coat is used to make products
such as clothing, coats, sweaters, carpets, teddy bears, purses, and other items. Seconds
are pieces of fleece that come from the wool on the neck, head, legs, and other scraps.
These pieces are worth less than the prime, but which can still be used and sold as carpets
and felt. When an animal dies, the pelt is then sent to a local taxidermist.
In addition to revenue obtained from alpaca breeding and fleece sales, other
sources of income include monetary awards from alpaca shows, providing boarding for
other alpaca owners, educational programs, and manure sales. According to the
36
Cheryl and Ross Palmentera interview (4/26/03).
19
Palmenteras, in order to ensure success, alpaca owners should participate in shows. This
provides an opportunity to win awards and sometimes money, based on the alpaca’s
success in fleece density, crimp, posture, public relations, obstacles, and other categories.
Winning at shows helps a farm enhance its revenues from animal sales, as the offspring
of champions are in high demand for purchase and can likewise be sold at very high
prices. It is rare for prize money to be awarded, but in very large shows, victors are
occasionally rewarded with a check. Some farmers use educational tours, lectures,
shows, etc. as means for profit, as the alpaca market is little known and often fascinating
to outsiders. Some farmers supplement the income from their animals by boarding others’
animals. Frequently, farmers who use boarding services are new to the industry or are
only interested in alpacas as a tax write off. The average fee for boarding is $2-3 per
alpaca per day. Additionally, the manure of alpacas can be sold as fertilizer to gardeners
because of its effectiveness, pellet form, and low odor, thus providing another source of
revenue.
It appears that alpaca farming is generally very profitable. Dr. Stachowski stated
that it took him 2 ½ to 3 years to turn a profit. On average, an alpaca farmer turns a profit
in 3-5 years from the time at which the business was started. Dr. Stachowski claimed that
many horse farms never make a profit, but generally alpaca farms do yield a profit. He
stated that many new farmers enter the market without proper research and buy poor
quality alpacas, resulting in a loss of money. Those who take the time to research and
buy high quality animals, however, will make a significant profit.37 C R Alpacas has an
equally successful story. In a period of 5 years, they have purchased the small farm they
37
Dr. Anthony Stachowski interview (4/29/03).
20
operate, paid for their daughter’s college education, and will soon begin construction on a
$1,000,000 home.38
38
Cheryl and Ross Palmentera interview (4/26/03).
21
TAX CONSIDERATIONS
One major reason that people invest in alpacas is the tax benefits associated with
the business. As Mr. Palmentera39 explained, “They’re better than children.” Alpacas
qualify as 5-year farm property with the corresponding tax stipulations. The IRS allows
depreciation of 5-year farm property using either the declining balance (DB) method or
the straight-line (SL) method.
IRS Depreciation Percentages for 5-year Farm Property
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
DB Method 15.00% 25.50% 17.85% 16.66% 16.66% 8.33%
SL Method 10.00% 20.00% 20.00% 20.00% 20.00% 10.00%
Source: IRS, Farmer's Tax Guide, Publication 225, pp. 53-54.
Alpaca farmers can “expense” (Section 179) the purchase price of their alpacas
during the first year up to a value of $24,000 in 2002 and $25,000 in 2003.40 After
September 11, 2001, a temporary tax incentive to depreciate the capital investments by an
additional 30% was granted to small business owners. This law will expire, however, on
September 11, 2004.41 This incentive is visible, if, for example, in 2003, an alpaca
farmer purchases four female animals and one male animal for $100,000 total. The
farmer can then show a portion of the purchase price as a yearly expense as shown in the
following table, and likewise, can reduce the reported profits. The expense in 2003 is
calculated by adding $25,000 (Section 179) to 30% of the $75,000 left from the purchase
price (Special Law after 9/11) plus the allotted depreciation percentage on the remaining
balance of $52,500. In 2004, the allowed depreciation is either 25.5% or 20% of
39
Ross and Cheryl Palmentera interview (4/26/2003).
Department of the Treasury, Internal Revenue Service. Farmer’s Tax Guide, Publication 225, Cat. No.
11049L, p. 2. (http://www.irs.gov/pub/irs-pdf/p225.pdf).
41
Department of the Treasury, Internal Revenue Service. Farmer’s Tax Guide, Publication 225, Cat. No.
11049L, Ch. 8. (http://www.irs.gov/pub/irs-pdf/p225.pdf).
40
22
$52,500. The decision to use either “Declining Balance” or “Straight-Line” method will
depend on the specific circumstances of each individual alpaca owner.
Yearly Depreciation Expense of a $100,000 Alpaca Purchase
2003
DB Method
SL Method
2004
2005
2006
2007
2008
$55,375.00 $13,387.50 $9,371.25 $8,746.50 $8,746.50 $4,373.25
$52,750.00 $10,500.00 $10,500.00 $10,500.00 $10,500.00 $5,250.00
Occasionally, celebrities purchase alpacas in order to reduce their taxes from their
other income. Often, these people will pay a fee to have their animals boarded and cared
for on an established alpaca farm. Frequently, in these cases, the owners will keep the
alpaca only as long as they are able to use it as a tax write-off. Once the benefits have
expired, they will often sell the alpaca and purchase another one, thus continuing the
cycle and allowing for further tax profiting.
The IRS, however, does not allow a farm to continue to be a tax write-off
indefinitely. Farmers are required to show profits in three out of the last seven years.
Farms that fail the profit test, may still qualify for all the tax breaks, if the IRS determines
that the operation is striving to be profitable. The IRS considers factors such as the
businesslike operation of the ranch, the time and effort spent to make the business
profitable, dependency on farm income, whether losses are due to normal or unavoidable
circumstances, adjustment of business practices to improve profitability, and that the
ranching activities are carried out with intent other than personal pleasure or recreation.42
A combination of these features can qualify a farm as one that is seeking agricultural
profit, and therefore, allow for tax benefits and write-offs.
In addition to the initial purchase of alpacas being a source of depreciation, any
kind of capital such as farm equipment, trucks, tractors, etc. can also be depreciated in a
42
Alpaca Owners and Breeders Association, Inc. Farm and Ranch Guide 2002-2003. p. 20.
23
similar manner. Other expenses, like show and travel costs, and food and health
expenditures, reduce one’s reported net income and consequently, income taxes. When a
farmer sells a fully depreciated alpaca, the tax on the sale will be applied at the rate of the
capital gains, which is a much lower rate than that of the income tax.
Nevertheless, there are stipulations that apply to receiving such appealing tax
advantages. Dr. Stachowski43 explained that the tax laws written for alpaca farming are a
means of deferring payments for small, start-up businesses; not a means of eliminating
taxes entirely. If a farm does not shear or slaughter their livestock, then the alpacas
cannot truly be considered as agricultural livestock, and therefore, are not subject to the
same tax benefits. A ‘natural addition’ to the farm, that is, an alpaca born on one’s own
farm, has no depreciation value, as it was not purchased for a price. If such an alpaca is
kept for breeding purposes and sold after, for example, five years, taxes on the sale will
be at the capital gains tax rate, about half of the ordinary income tax rate.44 Dr.
Stachowski, however, usually prefers to sell a cria rather than keep it as breeding stock
and benefit from the lower capital gains tax when sold. Part of his motivation is the very
selective breeding practices he employs.45
One can also use alpaca tax write-offs while simultaneously supporting charitable
organizations. “When you buy an item from a nonprofit group, you are generally paying
fair market value, which means you can't take a charitable-contribution deduction on your
taxes for any part of your purchase. The exception is when the gift goes directly to the
43
Dr. Anthony Stachowski interview (4/29/2003).
Alpaca Owners & Breeders Association, Alpacas: Financial aspects of Alpaca ownership, (Estes Park,
CO: 2001), p. 18.
45
The economic reasoning here is that the certainty of the sale at the higher tax rate still yields a higher
return than the probability of the sale in the future with a lower tax rate. In mathematical terms, where S is
the sale price, p is the probability of future sale, ti is income tax rate and tcg is capital tax rate, (1-ti)S > (1tcg) pS.
44
24
nonprofit organization, such as with the Heifer Project International… The livestock you
buy, from a flock of chicks to water buffaloes and llamas, is sent directly to impoverished
families all over the world.”46 An alpaca farmer, presumably, can donate an alpaca to an
organization like the Heifer Project International and have the value of the alpaca
deducted as a charitable contribution.
The tax benefits are monumental in terms of financial advantages for alpaca
farmers, and, as with the Palmenteras,47 serve as the deciding factor in many people’s
decisions to undertake the endeavor of raising and farming alpacas. Overall, the tax
benefits associated with alpaca farming are substantial enough to generate interest in
investing in the business.
Roha, Ronaleen R.; Burt, Erin; Rossi, Josephine. “Gifts That Give More Than Once.” Kiplinger's
Personal Finance, Dec. 2000, Vol. 54; Issue 12, p. 146.
47
Ross and Cheryl Palmentera interview (4/26/2003).
46
25
FUTURE CONSIDERATIONS
Considering the average price of an alpaca, it is no surprise that these animals are
currently being farmed in every state of the United States.48 Even more interesting is that
this price has stayed consistent since 1984 when alpacas were first imported to the United
States. However, one must wonder how long these prices will last. Will the alpaca
farming business blossom into an even more prosperous investment, or will it crash,
leaving thousands of mom-and-pop farming operations scrambling for pennies? It is
impossible to predict the future, and the history of alpaca farming in the United States is
too short to learn from the past. For the time being, it appears that alpaca farming can be
a reasonably lucrative short-term investment.
North American Alpaca Count excluding Geldings and Infertiles
Year End Huacayas
Year End Suris
Female
Male
Total
Female
Male
Total
1991
1,306
753
2,059
0
0
0
1992
1,685
998
2,683
1
0
1
1993
2,170
1,364
3,534
102
9
111
1994
3,008
1,924
4,932
452
134
586
1995
4,346
2,634
6,980
622
246
868
1996
6,024
3,472
9,496
1,025
45 1,070
1997
8,218
4,727
12,945
1,325
692 2,017
1998
10,101
6,196
16,297
1,781 1,035 2,816
1999
14,028
8,315
22,343
2,871 1,458 4,329
2000
15,695
9,857
25,552
3,184 1,787 4,971
2001
18,524
11,961
30,485
3,721 2,343 6,064
2002
22,490
15,353
37,843
4,460 3,077 7,537
Source: Alpaca Registry, Inc. (http://www.alpacaregistry.net/data6.html#111)
Future herd growth for alpacas in the United States will determine the return on
alpaca investments. According to the ARI records, shown in the above table, the growth
rate is close to 30% per year.
48
Available: http://www.alpacaregistry.net/data6.html#111 [2003, May 12]
26
As long as the ARI continues its ban on
Distribution in North America (5/1/2003)
unregistered imports, artificial insemination,
and embryo transplants, explosive, sudden
growth of alpaca population is very unlikely. If
the herd growth stays stable at 30% per year, by
the year 2010, there will still be only about
290,000 alpacas spread amongst all the farms in
the United States. However, if this trend
Total
Huacaya
Female
Gelding
Infertile
Male
Suri
Female
Gelding
Infertile
Male
U.S.A. Ohio Canada
44,930 6,283 4,775
36,951 5,125 4,550
21,552 3,198 2,552
627
58
55
3
0
0
14,769 1,869 1,943
7,979 1,158
225
4,625 685
122
79
9
1
0
0
0
3,275 464
102
Source: The Alpaca Registry, Inc.
continues, 15 years from now, the number of
(http://www.alpacaregistry.net/data6.html#111)
alpacas in the United States will be 2.4 million, close to the 2.5 million alpacas that
currently “reside” in Peru, most of them in the wild.49
As the number of alpaca farms
Price
Supply
increases and alpaca herds continue to
grow, more alpacas will be available for
sale by ranchers at each and every price
Demand
level. This is shown in the diagram as a
rightward shift of the supply curve. The
Quantity
impact of the supply shift will be to lower the price of the alpacas. In terms of the
diagram, the downward sloping demand curve will determine the lower price.
As long as imports are banned, the only source of population growth will be
through breeding. The restraints on artificial breeding and the constraints on the natural
49
(September 15, 2002) It is reported that the winter of 2002 in Peru was so severe that one-fifth of the
country’s herds of llamas and alpacas (over 80,000 animals) died. Available: http://www.glaaalpaca.org/news/index.html [2003, May 12].
27
growth of alpaca population imply a stable growth pattern for the future. If alpacas are
imported in the future, large-scale importation may potentially depress prices. As early
as 1994, a Forbes article warned about the bottom dropping out: “The alpaca craze could
end suddenly if importers figure out how to turn more of those $250 Andean alpacas into
$20,000 Vermont alpacas. For now, limited quarantine space is keeping imports down to
450 a year.”50
Even before the import ban, the prognosis provided to Canadian alpaca breeders
in 1996 was very favorable, claiming that “the prices should be pretty stable … for the
next 20 years because the government has tight regulations on animals coming into the
country and Peru isn’t allowing many more animals to leave.”51 It might have been the
realization of the potential harm to their wealth that convinced the breeders to ban
imports.
There is evidence that large scale importation can depress prices. In Canada, the
price of llamas tumbled after imports began to flow in. “Between 1990 and 1996, a
period when Agriculture Canada severely restricted livestock imports, …prices
commonly reached $20,000 to $30,000 per animal, occasionally $100,000… When the
import restrictions came off, half a dozen importers began flooding the market with
thousands of animals,” depressing the price down to $1,000.52
The United States is not the only country currently exploiting the alpaca market.
Farmers in Japan, England, Australia, and many other countries around the world are
catching on to the craze with new farms popping up all over the place. Competition from
Meeks, Fleming. “Chain letter Investing,” Forbes 6/20/94, Vol. 153, Issue 13, p. 251.
Piali, Roy. “Bulls, bears and alpacas,” Canadian Business, Dec. 96, Vol. 69 Issue 15, p. 139.
52
Mike Byfield. “One way to lose money fast,” Report / Newsmagazine (Alberta Edition), 06/19/2000, Vol.
27, Issue 4, p. 33.
50
51
28
these countries may limit the income of American alpaca owners. According to the ARI,
the registered herd sizes abroad are quite
small. As long as registered alpacas are
viewed as a valuable commodity, and
unregistered alpacas are shunned, foreign
competition will not be a factor for years
to come.
Would the alpaca prices collapse
fifteen years from now when 2.4 million
alpacas are raised in the United States?
Demand for alpacas during the last
Registered Live Animals (5/1/2003)
Country
Australia
Canada
Chile
China
England
Germany
Italy
New Zealand
Peru
Sweden
USA
Unknown
TOTALS
Deceased
Total Huacaya Suri
402
209 193
4,775
4,550 225
134
101
33
8
0
8
1
1
0
8
8
0
1
1
0
1
1
0
30
26
4
6
6
0
44,930 36,951 7,979
158
136
22
50,454 41,990 8,464
2,569
2,217 352
Source: The Alpaca Registry, Inc.
(http://www.alpacaregistry.net/data6.html#111)
twenty years has kept pace with the
supply increase, holding prices high. As long as the ranchers prefer to enlarge their herds
and offer only a small portion of their herd for sale, the herd growth will not be reflected
in the supply growth.
On the demand side of the equation, marketing efforts by the industry may keep
interest in owning alpacas high enough to preserve the current prices. New markets of
unknown potential may also be unearthed. Even though, the alpaca market relies
predominantly on the reproduction and selling of the animals, with the sale of fleece
often viewed merely as an afterthought, development of the fleece market may contribute
to the future demand significantly.
Currently, the market for top quality alpaca fleece is small. Clothing made from
alpaca wool does not commonly appear in large department stores or discount chains. If
29
the market were to extend into untapped niches, alpaca wool could theoretically become
the next sheep’s wool. The majority of the fleece is shipped to Peru to be processed and
woven. Presumably, if more mills were to be established in closer proximity to the
American farmers, transportation costs would be lower and the value added in the
industry would rise. However, costs of processing the fleece in the United States would
be much higher because of higher labor costs and would not warrant establishment of
large-scale mills within the United States. The alpaca clothing industry in the United
States would have an advantage in design, marketing and distribution aspect of the sector
and could contribute significantly to the value of the final product.
When asked whether or not they were afraid of the market dropping out in 20
years, Ross and Cheryl Palmentera seemed unconcerned. They claimed that their
business remained highly lucrative since they started five years ago.53 To the same
question, Dr. Anthony Stachowski, who has a herd of 400, responded,54 “It has been
almost 20 years since I started and it still hasn’t dropped yet. When I first started in
1984, all of my friends who considered entering this business were afraid to join because
they all thought it would drop. Well, they are still working their regular jobs, and now I
am a multi-millionaire.”
At any rate, the market is still quite young in America - not yet 20 years old. If
the entrepreneurs that invest in Alpaca farming can adapt to whatever changes lay on the
horizon, they will go strong and prosper for at least another generation.
53
54
Palmentera interview (4/26/2003).
Dr. Anthony Stachowski interview (4/29/2003).
30
WORKS CITED
Books and brochures:
1. Alpaca Owners & Breeders Association, Inc. Alpacas: Financial aspects of
Alpaca ownership, (Estes Park, CO: 2001).
2. Alpaca Owners and Breeders Association, Inc. Farm and Ranch Guide 20022003.
3. Department of the Treasury, Internal Revenue Service. Farmer’s Tax Guide,
Publication 225, Cat. No. 11049L, p. 2. (http://www.irs.gov/pub/irspdf/p225.pdf).
Articles:
1. Byfield, M. “One way to lose money fast,” Report / Newsmagazine (Alberta
Edition), 06/19/2000, Vol. 27, Issue 4, p. 33.
2. Long, W. R. “Running with the Alpacas,” New York Times. 09/19/98, Vol. 148,
Issue 51285, p. C1.
3. Meeks, F. “Chain letter Investing,” Forbes 6/20/94, Vol. 153, Issue 13, p. 251.
4. Piali, R. “Bulls, bears and alpacas,” Canadian Business, Dec. 96, Vol. 69 Issue
15, p. 139.
5. Roha, R. R.; Burt, E.; Rossi, J. “Gifts That Give More Than Once.” Kiplinger's
Personal Finance, Dec. 2000, Vol. 54; Issue 12, p. 146.
Web sources:
1. The Alpaca Dictionary. Hayne Alpacas http://www.haynealpacas.co.uk/dictionary.php
2. Breeding and Genetics: Selection. MileEnd Alpacas and Classical Alpacas.
http://www.alpaca-uk.co.uk/bloodcounts2.html
3. Cameron, T. and Hull, S. Alpaca gestation lengths. Phantom Canyon Alpaca
Farm. http://www.alpaca-farm.com/alpaca-articles.htm#berserk
4. Davis, L. K. Alpaca care and diet. Alpaca.com
http://www.alpacanet.com/alpacacareanddiet.cfm
5. Hoffman, E. History of Alpaca Registry. The Alpaca Registry [Online]. Available:
http://www.alpacaregistry.net/history.html [2003, May 12].
6. Safley, M. Alpaca herdsire selection: The art and the science. Northwest Alpacas.
http://www.alpacas.com/AlpacaLibrary/AlpacaHerdsireSelection.aspx
7. http://www.alpaca.com
8. http://www.alpaca.net.au
9. http://www.alpacainfo.com/
10. http://www.alpacaplanet.com/
11. http://www.alpacaregistry.net/
12. http://www.bluebirdhills.com
13. http://www.glaa-alpaca.org/news/index.html
Interviews:
1. Cheryl and Ross Palmentera interviews (4/26/03 and 5/7/03).
2. Dr. Anthony Stachowski interviews (4/29/2003 and 5/7/03).
31