Congratulations on beginning your journey toward potentially adding alpacas to your world!
Being an alpaca owner provides unique and wonderful life experiences. People in many countries call alpacas “the world’s finest livestock.” Valuable business assets of any kind possess qualities that make them desirable: gold is scarce, real estate provides shelter, oil produces energy, bonds earn interest, stocks may increase in value, and diamonds symbolize love. Alpacas share some of these same attributes.
Alpacas are scarce and unique, and the textiles produced from their fleeces are in demand at fashion centers in New York, Paris, Milan, and Tokyo. There are excellent profit opportunities and tax advantages available to alpaca breeders. Historically, alpacas sustained ancient cultures, including the Incas of Peru. Today, alpacas still represent the primary source of income for thousands of South Americans. History has validated the value of the alpaca.
Long before stocks were sold on the New York Stock Exchange, livestock was a traditional form of wealth for many cultures. The richest families of ancient times counted their wealth by the size of their herds. Today wealth as a result of livestock ownership is not as common, but opportunities do exist for profitable farms and ranches. Tending to a herd of graceful alpacas can be an exciting source of revenue, and a rewarding lifestyle.
A key question to answer before starting a new venture is, WHY? Why are you considering becoming an alpaca owner?
Alpacas offer an outstanding choice for livestock ownership. Alpacas have a charismatic manner, they do very well on small farms, and they produce a luxury product which is continually increasing in demand.
In researching the opportunities and gathering information to help with your decision making, it is recommended you visit as many farms in your local area as possible. Review the farm environment and operation of each, and ask the owners about their views of the alpaca industry. The AOA website, www.alpacainfo.com, and AOA's Alpaca Owners Guide are great tools to help you locate farms near you. In addition to researching the alpaca industry and relevant statistics, it is strongly recommended that you spend time with a business consultant or tax advisor to discuss your interest in starting an alpaca business.
Many breeders will work with you to develop a plan designed for your particular situation; however, you are encouraged to independently develop your own financial analysis utilizing professional support if necessary. As a buyer you need to be certain that starting an alpaca business is an appropriate use of both your time and financial resources.
Analyzing the feasibility of alpaca ownership requires making a set of assumptions. Determining the costs associated with raising the animals and how much revenue they might generate in the future are the basic elements used in projecting a return on the investment. The assumptions found here are 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, properly fenced with a small barn or shelter. Many farms already have outbuildings suitable for alpacas. The alpaca owner is presumed to supply the day-to-day labor.
A 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 make the important decisions about care, breeding, sales, etc.
You may have an existing farm to use for your alpacas, or you may be starting new. If you are starting new, please check your local and county ordinances to ensure that starting a farming operation on your selected property is allowed, and whether there are any constraints you need to keep in mind as you develop your business plan.
The organization of your farm will impact the efficiency of your day-to-day operations. As you are visiting other farms, take pictures of their set ups and ask questions about what they like about their setup, and what would they love to change.
Will you have a centralized barn or will you have multiple portable style shelters?
Think about putting electrical outlets close to your water tanks if you have freezing winters (unless you enjoy breaking ice), and close to your shelters in case you have very warm days and need to plug in a fan to help keep the alpacas cool.
Hay Storage will be driven by the form of hay available to you and the type of equipment you have available for moving the hay—small square bales (55–100#); large square bales (3’x3’x8’); or round bales. It is important to ensure hay does not mold due to exposure to moisture, so proper storage is essential.
Have a plan for the disposal of your manure. It may be a stock pile you spread on your pastures and fields, or selling it to gardeners or nurseries. New manure will be created daily by the alpacas, and should be removed from their living area on a regular basis to minimize the risk of parasites.
Alpacas need to be shorn yearly for their health, and the collection of your annual fiber harvest. The shearing event is something you may hold on your farm, or you may take your animals to another location for shearing.
In addition to pasture and hay, alpacas require supplements to guarantee they get essential vitamins and minerals. Some owners also provide extra supplements in the form of grain or pellets. Some farms will purchase pellet supplements in 50# bags, while others will buy in bulk and store the feed in large bins.
Alpacas need to have their toenails cut on a regular basis. In some areas they will need routine immunizations. Teeth trimming may be required. Assistance with birthing may be necessary. The ability to weigh alpacas is important in managing their health. Having an area where a scale and restraining chute can be set up is important.
Do you have a local vet to call on when required? Are you willing to administer injections or draw blood yourself?
Every farm should be prepared for the need to get an alpaca from the farm to a veterinary office or local animal hospital for treatment. If you plan to participate in the AOA show system, the style and size of trailer maybe oriented to the number of animals you plan to show and the distance you are willing to travel to show them.
Consider the use of tractors, UTVs, hay elevators, manure spreaders or brush hogs as tools for helping to manage the farm environment.
Will you have a farm store where you can sell your fiber and fiber products? Will local zoning regulations allow retail sales from your location? Do you have a building that could be renovated to a store, or will you need a new structure?
If you are thinking of processing some or all of your own fiber, do you have space for washing, drying, dying or other value-added activities you may perform?
Prices for shelter, fencing, equipment, 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 could add $500 – $1000 to your initial costs.
A great advantage of the alpaca business is there are multiple opportunities for generating revenue. As you visit other alpaca owners, be sure to ask them about their revenue generation activities.
Any of these methods can work to generate income with alpacas. The key to success is finding the method(s) that work best for you.
Every business owner has operational expenses necessary to run their business. These are areas of expenses that should be considered as you research the alpaca industry.
If you are viewing this new relationship with alpacas as a business, it is essential to treat it as a business.
Will you be doing all of the manual labor, or will you be hiring individuals to help you, either occasionally or on a daily basis?
Plan on the need to repair equipment, fencing, water lines, or other items you and the alpacas regularly depend on.
The AOA show system is a great way to market your alpacas and your farm. As a participant, you will have show entry fees, stall fees, and travel costs to plan for.
The alpaca fiber is your annual harvest and you should have plans for how the fiber will be utilized. How you have it processed is a personal preference, but everyone should consider having it processed in some manner.
Every business needs to market themselves and their products to attract new customers.
The major tax advantages of alpaca ownership include depreciation, capital gains treatment, and, if you are an active hands-on owner, the benefit of offsetting ordinary income from other sources with expenses from your ranching business.
It is important to 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, in case your actual experience differs from your assumptions. Quality, color, gender of alpaca offspring, and strength of the overall industry could influence income results positively or negatively.
Those considering entering the alpaca industry should engage an accountant for advice in setting up bookkeeping and determining the proper use of the concepts discussed in this brochure. A very helpful IRS publication, #225, “The Farmer’s Tax Guide,” can be obtained from your local IRS office.
Raising alpacas at your own ranch in the hands-on fashion can offer the active owner some very attractive tax advantages. If alpacas are actively raised for profit, all the expenses attributable to the endeavor can be written off against your income. These expenses can also help shelter current cash flow from taxes.
The less active owner using the agisted ownership approach may not enjoy all of the tax benefits, but many of the advantages apply. For instance, the passive alpaca owner can depreciate breeding stock and expense the direct cost of maintaining the animals. The main difference between a hands-on, or active, rancher and a passive owner involves deducting losses against other income. The passive investor may only be able to deduct losses from investment against gain from the sale of animals and fleece. The active rancher can take the losses against other income.
Alpaca breeding allows for tax-deferred wealth building. An owner can purchase several alpacas and then allow the herd to grow over time without paying income tax on its increased size and value, until he or she decides to sell an animal or sell the entire herd.
To qualify for the most favorable tax treatment as a rancher, you must establish that you are in business to make a profit and are actively involved in your business. You cannot raise alpacas as a hobby rancher or passive investor and receive the same tax benefits as an active, hands-on, for-profit rancher.
Once you’ve established that you are raising alpacas with the intent to make a profit, you can deduct all qualifying expenses from your gross income.
It is strongly recommended that you spend time with a tax and accounting specialist to understand the current IRS regulations and their applicability to an alpaca business.
Every startup business wants to know if they can be profitable and alpaca ownership is no different. The answer to the question is the same for any business: IT DEPENDS.
Can you keep the cost of ownership low and the revenue high? Reducing the cost of owning and raising alpacas is a key element for generating profits.
As for revenue, there are many potential methods of creating revenue and alpaca owners will choose the ones that they are most comfortable with. Generating revenue will require marketing and effort in order to acquire customers. The cost of marketing can be reduced by partnering with other farms.
With focused effort and the willingness to learn new skills, alpaca ownership can be profitable.
Many alpaca owners have found the alpaca lifestyle both personally and financially rewarding. As is true of any business start-up, owning alpacas involves a willingness to work and take financial risks. Your ultimate success will be determined by your ability to market your animals, fiber and finished goods, as well as your available resources, your communication skills, and your ability and willingness to provide top-notch customer service that results in a good reputation.
Work with your family, selected mentors and professional business advisers to develop an alpaca ownership plan that is best for you based on your current situation and goals. Although this article discusses different considerations for alpaca ownership, it is, of course, impossible to guarantee the ultimate success of any business.
AOA is dedicated to providing information and resources to help with research and decision making. AOA's website is a valuable tool in researching the industry.