Livestock has for centuries been a marker of a man's wealth. In biblical times, the richest men were the ones who had the largest flock of sheep or the biggest herd of cattle. Today, wealth as a result of livestock is not as common, but opportunities still exist for profiting from farm and ranch operations.

Since 1984, when alpaca started appearing in countries outside of South America, alpacas have been considered the "world's finest livestock business." What makes this animal so desirable? There are many qualities that answer this question. Alpaca are fairly scarce. They provide a product (fleece) that is growing in demand in textile markets around the world. Their value increases as the demand for their fleece rises. Alpaca are easily transported. They live relatively long reproductive lives. They are disease resistant and easily adapt to new environments. People can't resist these gentle, lovable creatures! Tending to a herd of alpaca can be an enjoyable AND profitable endeavor.

Increasingly, alpaca are becoming an important source of income for many people. These people come from many walks of life; have various reasons for getting into alpaca ownership; and have differing directions and goals in mind for their operation. Herd sizes range from just a few to several hundred, but the average size is 10 to 20. Most operations start out small and grow depending on their financial goals. Some people just do it merely for the love of this unique animal.

In the early years of the US alpaca industry, the ARI (Alpaca Registry, Inc.) was created as a database of registering animals and most breeders in the US have their animals registered with the organization. The registry assures accurate information of the genealogy through DNA blood typing. The registry allows breeders to track progeny in their offspring and proven qualities produced in their breeding stock. ARI also deters theft of registered animals. ARI-registered animals generally sell for considerably more than non-registered.

Demand for alpacas has remained strong since their introduction, and growth is expected to continue as the animal gains international recognition. They produce a luxury product that is in high demand world-wide. Alpaca will continue to provide an excellent opportunity for financial gain to those interested in the livestock business.

An alpaca owner can expect profitability from harvesting fleece, as well as in the selling of quality offspring. With new farmers entering this expanding market, the current industry is based on sales of quality breeding stock. Alpaca prices are influenced by factors including color, gender, fleece quality, and conformation of the animal. Well conformed alpacas with superior fleece characteristics sell for the highest prices. The range of value is generally between $12,000 and $150,000. Females typically go for $12,000 to $25,000 and males for $20,000 to $50,000. Like diamonds to the diamond market, the alpaca market pays a premium for the finest examples of the breed. Unique qualities and proven, exceptional offspring-producers can sell for 3 times those amounts and more.

Many breeders start with a few breeding age females and a male, or choose to pay for services of a herdsire. Each female is capable of producing one offspring each year. The concept of compounding comes into effect as 2 alpaca become 4, and 4 become 8, and so on. As the herd grows over time, other tax advantages add to the increasing value of the operation. Expenses can be claimed; depreciation employed; and income taxes deferred until the animals are sold. Investments are protected as alpacas are fully insurable against theft and mortality.

In order to qualify for the most favorable tax treatment, one must prove that they are in business to make a profit and be actively involved in the business, not just as a hobby. Being an active, hands-on alpaca owner allows access to some very attractive tax advantages. Careful records must be kept to separate personal expenses from business expenses. Business expenses for the active owner can also help shelter current cash flow from tax. All expenses directly related to the endeavor can be written off against income. These business-related expenses would include:

Vehicle mileage
Professional services for:
* Accounting
* Advertising
* Legal
* Tax preparation
* Veterinary
Livestock feed
Cost of hired labor
Repairs and maintenance
Interest
Breeding fees
Taxes and insurance
Rent / lease costs
Depreciation of animals used for breeding
Depreciation of real property improvements
Depreciation of farm equipment (tractors, trailers, trucks, etc.)
Fuel and oil
Misc. tools, chemicals and hardware
Publications and subscriptions
Association dues / memberships
Travel expenses
Educational expenses

The following items would be used in income calculation:

Income from the sale of livestock
Income from the sale of fiber
Rental income
Agriculture program payments
Income from Co-ops
Cancellation of debts
Income from other sources, such as services
Breeding fees

Many of the same tax benefits would apply to the passive alpaca owner / agisted ownership approach as well. The main difference in terms of tax consequences between the two types of ownership is this -- The passive owner may only be able to deduct losses from his investment against gain from the sale of animals and fleece, while the active owner can take the losses against other ordinary income as well.

Capital requirements vary depending upon geographic location, as well as individual tastes and business goals. A typical start up budget in the US might look like this:

Purchase of two pregnant females..........................$35,000
Insurance on animals for first year ............................$1,100
Equipment (ropes, halters, shears, etc.) ......................$500
Shelter and fences......................................................$30,000
Feed for first year..............................................................$300
Vets and misc.................................................................$1,100

TOTAL ...........................................................................$68,000

(Costs are rough estimates for comparison only. Actual costs may be higher or lower depending upon geographic location, climate, pre-existing property/facilities and health/quality of the stock.)

This is where the importance of goal setting and planning comes into play. You will need to make decisions based upon your personal desires, your available financial resources and the long-term goal for your operation. It is important to be well educated, feel comfortable with your decisions, have the needed finances available, and the ability to accept the financial outcome of your efforts if your actual experience differs from your expectations.

Again, this is in no way meant to be complete investment advice, but instead a summary of some financial considerations. We strongly recommend that you consult your accountant or tax advisor, and search out professional legal advice before moving forward with a decision to invest in the alpaca industry. They will be able to advise you according to the current tax laws and your specific needs. The IRS publication #225 The Farmer's Tax Guide, available through your local IRS office (or simply click the second link below) will also be helpful in the planning and initial set-up or your operation. Financial aspects of raising livestock specifically related to alpaca ownership can be found on the AOBA website (simply click on their link below.) Their brochure titled The Financial Aspects of Alpaca Ownership, provides valuable information about tax consequences, financial observations, financing options and purchase contracts that we do not feel qualified to provide.