Alpacas were first imported to the United States in 1984 and imports continued until 1998. In an effort to maintain the value of the alpacas in the United States, The Alpaca Registry, Inc. (“ARI”) was established in 1995 and manages a database housing pedigree and parentage information for registered alpacas. ARI is the only organization of its kind in the United States, but also registers alpacas in Canada and other countries throughout the world. ARI is currently a closed registry, meaning that every alpaca registered must be DNA tested and qualified as an offspring of two other ARI registered parents. In 1998, the ARI membership voted to close the Registry to outside imports. This means that only alpacas that can be DNA tested and validated as the offspring of two ARI registered parents will be registered. At present the number of alpacas in the United States is about 145,000.
As previously stated, the world’s population of alpacas is in the range of 3 million animals. The scarcity of alpacas is based on their slow rate of reproduction. Usually females give birth to one baby at a time with a gestation period of 11.5 months. Because of this slow reproductive rate, it will take a long time to drive the price of breeding stock down and top animals will always bring high dollars.
The alpaca industry has been steadily growing, as evidenced by the ARI registrations. Registrations in the past 10 years have grown 500%.
There are a few large ranches with over 500 alpacas, small ranches of only two or three alpacas, and everything in between. The average alpaca herd consists of about six to twenty alpacas. Most herds start out small and grow to the size that fits the breeder's ranch and financial goals. Almost all breeders are in business for the long haul; they believe in the future of the industry. With the relatively small number of alpacas currently available, there will be an extended and steady demand for breeding stock to continue meeting the needs of this growing industry for many years.
Effective May 22, 2008, the Senate and House of Representative of the United States in congress enacted H.R. 2419, the Food, Conservation and Energy Act of 2008 (the “Farm Act”) wherein the legal definition of ‘Livestock’ means “all animals raised on farms, as determined by the Secretary.” In the accompanying report to the Farm Act, the explanatory language states: “The definition of Livestock is intended to include Alpaca and Bison.” Alpaca are now designated as Livestock and are no longer considered “exotic.”
Short term growth in the industry would be expected to decline in the present time due to the current economics, however, current registrations, as of September 2008, were at 80% of the prior year’s registrations.
Slow economic times are a good opportunity to purchase additional alpacas at bottom dollar as there are those persons who will panic and not be willing to wait out the decline. However, a decline in the national markets also causes individuals to re-evaluate their investments and to look to other means for retaining and gaining income.
“Raising alpacas can offer an individual some very attractive tax advantages. In 2003 those benefits increased due to the "Jobs and Growth Tax Relief Reconciliation Act of 2003." which was enacted into law on May 28, 2003. Among other things, it allows small-business owners to write off 100% of newly acquired assets in the first year, rather than depreciate them over several years. It was amended for the 2008 tax year. The new rules added several powerful incentives for people who buy alpacas. The IRS Section 179 deduction has been raised to $250,000, and it is available thru 2010. In addition, for 2008 only, special bonus depreciation is available. For farms making large capital investments in 2008, this offers a huge benefit.
If alpacas are raised for profit, all the expenses attributable to the endeavor can be written off against your income. Expenses would include not only feed, fertilizer, veterinarian care, etc., but depreciation of such tangible property as breeding stock, barns and fences, all of which can help shelter current cash flow from tax. Beyond these basics there are several strategic tax advantages for the alpaca farmer.
The fact is that Uncle Sam will pay for a portion of the cost of acquiring your herd, assuming you are currently paying income tax and plan to continue paying income tax over the next six years. You can write 100% of your original purchase price off, up to a maximum of $250,000, in the year of purchase. If you are in the 45% tax bracket (combined federal, state and self-employment tax rates), the deductions for depreciation that the animals are eligible for may save you up to 45% in cash, of your original purchase price.
Alpaca breeding also allows for wealth building, while deferring tax on your investment's increased value. A small farmer can purchase several alpacas and then allow their herd to grow over time without paying tax on its increased size and value. If the same amount of money was invested in a Certificate of Deposit, any interest earned would be currently taxable. In addition, the C.D. could not be depreciated, thereby offsetting the amount of tax due."
Unlike a stock portfolio, you can insure the alpacas against theft, mortality or loss for approximately 3.3% of the value of the animal.
With the current tax advantages available, the passage of the Farm Act, the insurability, and the ability to enjoy your investment in your own backyard, it is increasingly attractive to new alpaca purchasers.