The Investment you can hug

While genetic studies were revealing widespread hybridization in South American alpaca populations, a very different alpaca story was unfolding in North America. In the early 2000s, alpacas were being marketed as “the investment you could hug,” with some breeding animals fetching astounding prices of up to $750,000 at auction! Television advertisements promised an idyllic lifestyle, showing retired couples enjoying breakfast while watching their alpaca herds graze outside their windows.

The business model seemed simple: buy expensive breeding stock, raise their offspring, and sell them to other aspiring alpaca farmers for similarly high prices. However, economists noticed something wasn’t adding up. For these prices to make sense, the revenue from alpaca fiber would need to grow by 20% annually – a rate almost unprecedented for any agricultural product. Moreover, while live alpaca imports from Peru were restricted, there was no limitation on importing their fiber, which sold for far less.

When the bubble finally burst, many investors learned the hard way that successful alpaca farming requires much more than just buying expensive animals. Some owners found they couldn’t even give their alpacas away for free, leading to the emergence of alpaca rescue operations. It’s a cautionary tale about the difference between real agricultural value and speculative bubbles.

Source: Cima, R. (2015). When the Great Alpaca Bubble Burst. Priceonomics.