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November 12, 2007
Getting fleeced | Despite hefty price tags, alpacas are growing in popularity in Maine. But does raising them make good business sense?
By Whit Richardson
Darlene Reardon was working as a corporate travel agent in Boston when she saw her first alpaca in 2001. It was on the television and it looked "interesting," she says. Little did she know the long-necked furry creatures, a smaller cousin of the llama, would prove to be her ticket out of the city, and lead her and her husband, Michael, to the bucolic, 26-acre farm in Auburn they now call home.
But the Reardons' entry into the world of alpacas was more of an investment decision than a long-held desire to raise livestock. "They seemed to be a good investment," she says, pointing out that prices for alpacas have remained steady or increased since they were first imported from Chile in the early 1980s.
In 2002, the Reardons decided to forego the purchase of two new cars and instead used $54,000 to buy three female alpacas and half ownership in a well-known male alpaca named Grey Beard. The Reardons' new investments were boarded ˆ or "agisted," in alpaca speak ˆ at Chase Tavern Farm in Bowdoin, the largest alpaca farm in the state and the one the Reardons went Dutch on for Grey Beard.
While the couple continued to live and drive slightly out-of-style cars in their "upscale" Boston suburb, their fleece-clad investments quickly paid for themselves, then began turning a profit. Within three years Grey Beard sired two females that were sold at auction for a combined $100,000. The Reardons' share of that payday, along with $10,000 to $20,000 they collected in stud fees for renting out Grey Beard to other alpaca farmers for breeding purposes, allowed them to sell their house, buy 26 acres in Auburn and launch Full Moon Alpacas in 2005.
Today, Darlene, 48, works full-time with their 17 alpacas, while Michael, 44, telecommutes to work as a software developer for Proctor & Gamble. While Darlene says the endeavor started out as an investment, they were soon "smitten" with their alpacas.
The Reardons are just a small part of a rapidly expanding alpaca industry in Maine and the rest of the country. Since 2004, the number of alpaca farms in Maine registered with the Maine Alpaca Association has more than doubled, from roughly 30 to about 70 today, according to Raini Perry, president of the MAA and owner of Raini Ridge Alpacas in Palermo. But the number could be closer to 100 if you include places where people have them just as "pasture pets," or to, for example, supply themselves with yarn for weaving. Nationally, the number of alpaca farms increases about 20% each year, and currently there are roughly 100,000 alpacas being raised in the United States, according to the national Alpaca Owners and Breeders Association. (By comparison, there are nearly eight million sheep in the United States today, according to the U.S. Department of Agriculture.)
What has fueled this growth? The alpaca's only marketable end-product is its fiber. And while alpaca fiber is prized for its softness and is making inroads in the fashion world, there isn't enough demand yet in the United States to support an industry, according to Jerry Forstner, former president of the AOBA and owner of the largest alpaca herd in the country. Instead, the growth may come from rising interest in alpaca breeding, which requires a steady stream of people like the Reardons willing to plunk down tens of thousands of dollars per animal.
Most people within the industry say the growth is due to the low cost of maintaining alpacas ˆ estimates of the annual cost to keep an animal range from $300 to $1,000. You don't need lots of land ˆ five to eight alpacas can be raised on one acre. And they also are easy to maintain compared with other livestock. "You don't have to exercise them. You don't have to groom them. They don't have hoof problems because they don't have hooves," says Pamela Harwood, who raises about 20 alpacas at Longwoods Alpacas in Cumberland.
Still, some critical observers say the growth is fueled by people with money to spend and the chance to receive lavish tax breaks by throwing a few alpacas in the backyard and qualifying as a working farm. Skeptics say alpacas, without a viable market for their end product, won't retain their value and are just the latest speculative bubble in agriculture waiting to burst, as did the llama, emu and ostrich markets in the United States in the 1980s and 90s.
The alpaca bubble?
The alpaca industry is still in its infancy, says Forstner, who raises between 1,700 and 1,800 alpacas at Magical Farms in Litchfield, Ohio. Currently, the fiber and yarn alpaca farmers can produce is enough to pay for the upkeep of the animals, but doesn't turn a profit. Even if all the alpaca farms in the country were to gather all the fiber produced in a year, Forstner estimates the volume would only be enough to keep a commercial fiber mill busy for about two days.
He says the goal of the AOBA, which formed in 1988, and of alpaca farmers around the country is to grow the national herd ˆ the "breeding stock" ˆ so that it can support a viable alpaca fiber industry in the future. "That's the end-game in the alpaca industry," he says.
But that's still a long way off. Out of 100,000 alpacas in the country, only about 40,000 are viable fiber producers, meaning the fiber they produce is of high enough quality to create marketable yarn, says Forstner. The goal of breeders is to increase the quality of the fiber produced by the alpacas in the country. In Peru, which supports the only viable alpaca fiber industry in the world, there are two million alpacas, nearly all of which are viable fiber producers. (This is because alpacas are eaten in Peru before their fiber quality diminishes.)
Still, there's money to be made with alpaca fiber. The mainstay of the market for fiber in Maine has been a cottage industry of spinners and weavers. Maine's alpaca industry also has spun off other businesses. Several "mini mills" have sprung up around the state to support the alpaca farmers and turn their raw fleece, which goes for about $30 a pound, to yarn, which can be sold for upwards of $96 a pound. (An alpaca farm pays roughly $35 a pound for a mini mill to turn the raw fleece into yarn.) "There so many businesses that have blossomed out of this industry and that helps the whole state," says Cindy Lavan, co-owner of Chase Tavern Farm in Bowdoin.
In 2005, Harwood, along with some fellow alpaca farmers in the state, launched Fiber Pieces LLC, which collects the raw fiber from several North American alpaca farms and turns it into yarns and finished products, like socks. At a mini mill, Harwood says, she'd have to pay about $40 a pound to get the raw fleece turned to sellable yarn, but with the cost savings created by Fiber Pieces' bulk purchases, she says she can get their yarn made for about $21 a pound.
Like many alpaca farmers, Harwood keeps a long-range view of her industry. When deciding which alpacas to breed, she says the goal is to improve the national herd's fleece quality, not just her own, until a time when alpaca fleece will become as popular as sheep's wool and support an industry.
Meanwhile, alpaca enthusiasts in the United States will continue to pay upwards of $30,000 for a well-bred female, and as much as $500,000 for male alpacas with a good track record when it comes to offspring. (Forstner says he's seen a breeding male sold for $1.5 million.)
Not just any alpacas can sell for that much. Genetics are central to the alpaca industry and are considered essential in furthering the quality of the national herd. In 1988, the AOBA created Alpaca Registry Inc., which is where all alpacas bred in the country and imported from South America were registered and their bloodlines tracked. In 1998, the AOBA closed the registry to any alpacas that were imported. This move essentially stopped the importation of alpacas into the country, Forstner says. Hence, one of the reasons for high-priced alpacas: restricted supply.
Morelia Candia, a former doctor and owner of Andes Alpaca Farm in Auburn, last year purchased Neruda, a well-known breeding male ˆ or "herdsire" ˆ for $205,000 at an auction, according to auction records. She says she and her husband, a neurosurgeon at Central Maine Medical Center in Lewiston, did it to increase the value of their herd of 65 alpacas. It didn't hurt that Neruda's former owner grossed more than $1 million selling Neruda's offspring, says Candia, who was born in Chile but didn't see her first alpaca until she was living in Massachusetts. And even though it's too early to sell Neruda's offspring, Candia has already recouped a quarter of what she paid for him in stud fees ˆ she charges $5,000 for every outside breeding and does 10 breeding sessions a year. "It will get our investment back rather quickly and hopefully will be able to recuperate our money and make some more," she says. "That's the way it goes."
Some skeptics think prices for alpacas are artificially inflated and that alpaca farming is nothing more than a classic pyramid scheme, which relies on the constant recruitment of people to enter the industry to create a market for the animals. That was the conclusion of a study completed in late 2005 by Richard Sexton, a professor in the Department of Agricultural and Resource Economics at the University of California, Davis. Sexton concluded in the study, titled "Alpaca Lies: Do Alpacas Represent the Latest Speculative Bubble in Agriculture?" that "current prices for alpaca stock are not supportable by market fundamentals and that the industry represents the latest in the rich history of speculative bubbles in agriculture."
But Forstner, the former president of the AOBA, scoffs at the suggestion alpacas are just a speculative bubble waiting to burst. "I've never heard of a bubble going for 24 years," Forstner says. "And I don't see it slowing down for another 10 to 20 years."
He hesitates a moment. "Maybe it's a 40-year bubble," he says with a hint of sarcasm in his voice.
Landing tax breaks
Cindy and Tim Lavan were novices when they bought their first alpacas in 1993, but the couple saw "the potential and kept growing with it," Cindy says. Chase Tavern Farm in Bowdoin was one of the few farms breeding alpacas in Maine when it started; now it's the largest.
While most alpaca farming operations in the state only support one full-time person, Chase Tavern Farm, which pulls in about $1 million in revenue each year, supports both the Lavans, who have made alpacas their life. Cindy is a former AOBA board member and Tim travels around the country judging alpaca shows and handing out blue ribbons.
But like any business owner, Cindy deals with issues like high taxes in Maine and expensive health insurance. "We live a comfortable life, but we live paycheck to paycheck," Cindy says. "There's always a chance we won't have another sale for a few months."
Alpaca farmers do have some attractive tax breaks available. In 2003, President George W. Bush signed into law the Jobs and Growth Reconciliation Tax Act, which allows alpaca farmers, among others, to write off 100% of all business expenditures up to $108,000 ˆ from feed and veterinarian care to breedstock and barns ˆ rather than allowing them to depreciate over several years. That basically means the federal government will help anyone get into the alpaca business. "The $110,000 write-off has been helpful," Cindy Lavan says.
She admits some people might choose alpacas "for the bottom-line tax write off," but it's all about what someone wants to get out of the business.
Harwood, at Longwoods Alpacas in Cumberland, which annually pulls in about $73,000, says the tax breaks have certainly helped get her business off the ground. Since 17 acres of her 25-acre property is considered a working farm, roughly $35,000 has been knocked off her property valuation.
But she chafes at the suggestion that alpaca farmers are simply wealthy individuals looking for a place to dump some money and get some tax write-offs. "We're not just a bunch of gentlemen farmers with too much money looking for ways to hide our income," she says. "This isn't like buying a horse you're going to ride. This is a business."
But the Reardons' entry into the world of alpacas was more of an investment decision than a long-held desire to raise livestock. "They seemed to be a good investment," she says, pointing out that prices for alpacas have remained steady or increased since they were first imported from Chile in the early 1980s.
In 2002, the Reardons decided to forego the purchase of two new cars and instead used $54,000 to buy three female alpacas and half ownership in a well-known male alpaca named Grey Beard. The Reardons' new investments were boarded ˆ or "agisted," in alpaca speak ˆ at Chase Tavern Farm in Bowdoin, the largest alpaca farm in the state and the one the Reardons went Dutch on for Grey Beard.
While the couple continued to live and drive slightly out-of-style cars in their "upscale" Boston suburb, their fleece-clad investments quickly paid for themselves, then began turning a profit. Within three years Grey Beard sired two females that were sold at auction for a combined $100,000. The Reardons' share of that payday, along with $10,000 to $20,000 they collected in stud fees for renting out Grey Beard to other alpaca farmers for breeding purposes, allowed them to sell their house, buy 26 acres in Auburn and launch Full Moon Alpacas in 2005.
Today, Darlene, 48, works full-time with their 17 alpacas, while Michael, 44, telecommutes to work as a software developer for Proctor & Gamble. While Darlene says the endeavor started out as an investment, they were soon "smitten" with their alpacas.
The Reardons are just a small part of a rapidly expanding alpaca industry in Maine and the rest of the country. Since 2004, the number of alpaca farms in Maine registered with the Maine Alpaca Association has more than doubled, from roughly 30 to about 70 today, according to Raini Perry, president of the MAA and owner of Raini Ridge Alpacas in Palermo. But the number could be closer to 100 if you include places where people have them just as "pasture pets," or to, for example, supply themselves with yarn for weaving. Nationally, the number of alpaca farms increases about 20% each year, and currently there are roughly 100,000 alpacas being raised in the United States, according to the national Alpaca Owners and Breeders Association. (By comparison, there are nearly eight million sheep in the United States today, according to the U.S. Department of Agriculture.)
What has fueled this growth? The alpaca's only marketable end-product is its fiber. And while alpaca fiber is prized for its softness and is making inroads in the fashion world, there isn't enough demand yet in the United States to support an industry, according to Jerry Forstner, former president of the AOBA and owner of the largest alpaca herd in the country. Instead, the growth may come from rising interest in alpaca breeding, which requires a steady stream of people like the Reardons willing to plunk down tens of thousands of dollars per animal.
Most people within the industry say the growth is due to the low cost of maintaining alpacas ˆ estimates of the annual cost to keep an animal range from $300 to $1,000. You don't need lots of land ˆ five to eight alpacas can be raised on one acre. And they also are easy to maintain compared with other livestock. "You don't have to exercise them. You don't have to groom them. They don't have hoof problems because they don't have hooves," says Pamela Harwood, who raises about 20 alpacas at Longwoods Alpacas in Cumberland.
Still, some critical observers say the growth is fueled by people with money to spend and the chance to receive lavish tax breaks by throwing a few alpacas in the backyard and qualifying as a working farm. Skeptics say alpacas, without a viable market for their end product, won't retain their value and are just the latest speculative bubble in agriculture waiting to burst, as did the llama, emu and ostrich markets in the United States in the 1980s and 90s.
The alpaca bubble?
The alpaca industry is still in its infancy, says Forstner, who raises between 1,700 and 1,800 alpacas at Magical Farms in Litchfield, Ohio. Currently, the fiber and yarn alpaca farmers can produce is enough to pay for the upkeep of the animals, but doesn't turn a profit. Even if all the alpaca farms in the country were to gather all the fiber produced in a year, Forstner estimates the volume would only be enough to keep a commercial fiber mill busy for about two days.
He says the goal of the AOBA, which formed in 1988, and of alpaca farmers around the country is to grow the national herd ˆ the "breeding stock" ˆ so that it can support a viable alpaca fiber industry in the future. "That's the end-game in the alpaca industry," he says.
But that's still a long way off. Out of 100,000 alpacas in the country, only about 40,000 are viable fiber producers, meaning the fiber they produce is of high enough quality to create marketable yarn, says Forstner. The goal of breeders is to increase the quality of the fiber produced by the alpacas in the country. In Peru, which supports the only viable alpaca fiber industry in the world, there are two million alpacas, nearly all of which are viable fiber producers. (This is because alpacas are eaten in Peru before their fiber quality diminishes.)
Still, there's money to be made with alpaca fiber. The mainstay of the market for fiber in Maine has been a cottage industry of spinners and weavers. Maine's alpaca industry also has spun off other businesses. Several "mini mills" have sprung up around the state to support the alpaca farmers and turn their raw fleece, which goes for about $30 a pound, to yarn, which can be sold for upwards of $96 a pound. (An alpaca farm pays roughly $35 a pound for a mini mill to turn the raw fleece into yarn.) "There so many businesses that have blossomed out of this industry and that helps the whole state," says Cindy Lavan, co-owner of Chase Tavern Farm in Bowdoin.
In 2005, Harwood, along with some fellow alpaca farmers in the state, launched Fiber Pieces LLC, which collects the raw fiber from several North American alpaca farms and turns it into yarns and finished products, like socks. At a mini mill, Harwood says, she'd have to pay about $40 a pound to get the raw fleece turned to sellable yarn, but with the cost savings created by Fiber Pieces' bulk purchases, she says she can get their yarn made for about $21 a pound.
Like many alpaca farmers, Harwood keeps a long-range view of her industry. When deciding which alpacas to breed, she says the goal is to improve the national herd's fleece quality, not just her own, until a time when alpaca fleece will become as popular as sheep's wool and support an industry.
Meanwhile, alpaca enthusiasts in the United States will continue to pay upwards of $30,000 for a well-bred female, and as much as $500,000 for male alpacas with a good track record when it comes to offspring. (Forstner says he's seen a breeding male sold for $1.5 million.)
Not just any alpacas can sell for that much. Genetics are central to the alpaca industry and are considered essential in furthering the quality of the national herd. In 1988, the AOBA created Alpaca Registry Inc., which is where all alpacas bred in the country and imported from South America were registered and their bloodlines tracked. In 1998, the AOBA closed the registry to any alpacas that were imported. This move essentially stopped the importation of alpacas into the country, Forstner says. Hence, one of the reasons for high-priced alpacas: restricted supply.
Morelia Candia, a former doctor and owner of Andes Alpaca Farm in Auburn, last year purchased Neruda, a well-known breeding male ˆ or "herdsire" ˆ for $205,000 at an auction, according to auction records. She says she and her husband, a neurosurgeon at Central Maine Medical Center in Lewiston, did it to increase the value of their herd of 65 alpacas. It didn't hurt that Neruda's former owner grossed more than $1 million selling Neruda's offspring, says Candia, who was born in Chile but didn't see her first alpaca until she was living in Massachusetts. And even though it's too early to sell Neruda's offspring, Candia has already recouped a quarter of what she paid for him in stud fees ˆ she charges $5,000 for every outside breeding and does 10 breeding sessions a year. "It will get our investment back rather quickly and hopefully will be able to recuperate our money and make some more," she says. "That's the way it goes."
Some skeptics think prices for alpacas are artificially inflated and that alpaca farming is nothing more than a classic pyramid scheme, which relies on the constant recruitment of people to enter the industry to create a market for the animals. That was the conclusion of a study completed in late 2005 by Richard Sexton, a professor in the Department of Agricultural and Resource Economics at the University of California, Davis. Sexton concluded in the study, titled "Alpaca Lies: Do Alpacas Represent the Latest Speculative Bubble in Agriculture?" that "current prices for alpaca stock are not supportable by market fundamentals and that the industry represents the latest in the rich history of speculative bubbles in agriculture."
But Forstner, the former president of the AOBA, scoffs at the suggestion alpacas are just a speculative bubble waiting to burst. "I've never heard of a bubble going for 24 years," Forstner says. "And I don't see it slowing down for another 10 to 20 years."
He hesitates a moment. "Maybe it's a 40-year bubble," he says with a hint of sarcasm in his voice.
Landing tax breaks
Cindy and Tim Lavan were novices when they bought their first alpacas in 1993, but the couple saw "the potential and kept growing with it," Cindy says. Chase Tavern Farm in Bowdoin was one of the few farms breeding alpacas in Maine when it started; now it's the largest.
While most alpaca farming operations in the state only support one full-time person, Chase Tavern Farm, which pulls in about $1 million in revenue each year, supports both the Lavans, who have made alpacas their life. Cindy is a former AOBA board member and Tim travels around the country judging alpaca shows and handing out blue ribbons.
But like any business owner, Cindy deals with issues like high taxes in Maine and expensive health insurance. "We live a comfortable life, but we live paycheck to paycheck," Cindy says. "There's always a chance we won't have another sale for a few months."
Alpaca farmers do have some attractive tax breaks available. In 2003, President George W. Bush signed into law the Jobs and Growth Reconciliation Tax Act, which allows alpaca farmers, among others, to write off 100% of all business expenditures up to $108,000 ˆ from feed and veterinarian care to breedstock and barns ˆ rather than allowing them to depreciate over several years. That basically means the federal government will help anyone get into the alpaca business. "The $110,000 write-off has been helpful," Cindy Lavan says.
She admits some people might choose alpacas "for the bottom-line tax write off," but it's all about what someone wants to get out of the business.
Harwood, at Longwoods Alpacas in Cumberland, which annually pulls in about $73,000, says the tax breaks have certainly helped get her business off the ground. Since 17 acres of her 25-acre property is considered a working farm, roughly $35,000 has been knocked off her property valuation.
But she chafes at the suggestion that alpaca farmers are simply wealthy individuals looking for a place to dump some money and get some tax write-offs. "We're not just a bunch of gentlemen farmers with too much money looking for ways to hide our income," she says. "This isn't like buying a horse you're going to ride. This is a business."
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