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When the Great Alpaca Bubble Burst


Stashed in: Bubble!, Economics, Freakonomics

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An adult alpaca produces 6-8 pounds of fiber per year. A women’s alpaca sweater on Amazon weighs about 1.1 pound. How much are you willing to pay for that sweater, and how many of those sweaters do you need per year?

The thing about livestock bubbles is they very quickly start to look like pyramid schemes: people keep selling alpacas to people who want to use them to make more alpacas to sell to people who want to use them to make more alpacas. The only way for that to work is if, someone, somewhere down the chain really, really wants alpaca wool (or a steady supply of alpaca burgers, or alpaca rides). And there either have to be a lot of those people, or they want/need the product so much they’re willing to pay a lot for it. 

The limits of the domestic fiber market were well-known among American alpaca farmers. But there was a commonly-held belief that it was only a matter of time before infrastructure caught up to the volume of raw fiber farms produced.

In a 2006 paper titled “Alpaca Lies? Speculative Bubbles in Agriculture: Why They Happen and How to Recognize Them,” UC Davis researchers Richard Sexton and Tina Saitone noticed that the price for an adult alpaca at auction didn’t make sense, given the price of alpaca wool. They calculated that the revenue from the sale of alpaca fiber would need to increase 20% a year, over several years, for the observed live-animal prices to be justified. This would require demand for fiber to grow at a rate “almost unprecedented” for an agricultural product.

I'm rather surprised that there was an Alpaca Bubble and this is the first I'm hearing of it.

A good reminder not to get involved with livestock bubbles.

The two atop this page look completely unaware of the harm they've done.

Not their fault. They're just trying to spend as much time grazing as they can. 

Like...pandas?

Yes! Like pandas!

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