Investment Potential of Alpacas

NOTE: The following is for informational purposes only and is meant to serve as a guide for those interested the business/investment aspects of alpacas. Chesapeake Alpacas makes no warranties or representations, either express or implied, as to the content contained herein.

Of course alpacas are cute and cuddly, but did you know that alpaca breeding is also a sound investment opportunity with the potential for real profits as well as attractive tax advantages? With responsible financial management, quality breeding stock and prudent business practices, breeding alpacas can provide a solid return on investment. If you are willing to dedicate your own finances, time and effort, there is every reason to believe your alpaca venture will be successful. The market for quality breeding stock is strong as evidenced by recent record-breaking auction prices. In addition, alpaca prices have remained steady over the last 5 years due to increased demand, the establishment of The Alpaca Registry to ensure DNA-verified pedigrees, and the recent closing of the registry to future imports from South America.

The alpaca industry in the U.S. is currently "breeding-based." This means that return on investment is realized through the sale of breeding stock. Example 1: Consider one pregnant female purchased for $20,000. That female produces one offspring per year for approximately 10-15 years. If female offspring are sold for the same amount as the original female, that’s a 100% return on your initial $20,000 investment and you still have the original female to produce more offspring. Even factoring in a price decrease, the return on initial investment remains impressive. Example 2: Consider the same pregnant female as in the example above, purchased for $20,000. Now factor in a price decrease of 20% for the same female offspring, or a sales price of $16,000. That’s still a return on your initial investment of 80%. As you can see, it would take a severe price erosion to jeopardize your initial investment. The examples above are simplified for ease of illustration and do not account for expenses, male offspring, or unforeseeable reproductive problems. Actual returns, assuming an 80% reproductive rate and 50/50 male/female offspring, generally range between 25-50% - still an impressive return.

The alpaca industry is expected to remain breeding based for many years to come because of several factors:

Reality Check

It is important to understand that alpaca breeding is not a "get rich quick scheme," nor is it right for everyone. Alpaca ownership as a business requires a substantial commitment of time as well as capital outlay. It is a business that can provide tremendous personal fulfillment and financial rewards; however, like any other business or investment, it is not without some level of risk. There are many aspects of alpaca breeding that should be carefully considered before deciding if it is right for you.

Forms of Alpaca Ownership

There are essentially two forms of alpaca ownership:

Active/Hands-on — This scenario assumes ownership of property or a farm. All care and maintenance is performed by the owner. The hands-on owner may depreciate breeding stock, equipment, etc.

Passive — This scenario assumes ownership of the alpacas only with care and maintenance performed by an established breeder with whom the animals are boarded (also referred to as "agistment"). The owner still makes breeding and sales decisions and, in some cases, may be involved with the animals in a limited capacity (showing, etc.). In this scenario, the owner may still write off expenses and depreciate breeding stock.

Hands-on owners enjoy the most tax advantages though passive owners do enjoy many advantages as well. The main difference between a hands-on, or active farmer, and a passive owner concerns the passive owner’s ability to deduct his investment losses against his other income. The passive investor may only be able to deduct losses of his investment against gain from the sale of animals and fleece. The active farmer may take the losses against his other income.

Tax Considerations

If actively raised for profit, all expenses such as feed, fertilizer, and veterinary care relating to the business can be written off against ordinary income. Hands-on owners may also depreciate certain tangible assets such as breeding stock, barns, fencing, and equipment. Raising alpacas can also provide tax-deferred wealth building by allowing you to defer payment of income tax on the increasing value of your herd until such time you begin selling offspring. You should consult with your accountant regarding your individual tax situation.

 

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