— The Openherd Team

Shepherd Hills Alpacas

You don't have to own a farm to own alpacas!

Frank and Diane Beauchner
1442 Par CausewayWescosville, PA 18106

June 03, 2011

Part II: What Are You Doing with Your Alpaca Fleece?

A Tale of Two Co-ops

By: Diane Beauchner and Anne Spreng

Part II: What Are You Doing With Your Alpaca Fleece?
A Tale of Two Co-ops
by Diane Beauchner and Anne Spreng

All your alpacas are shorn. Your adorable crias look slightly forlorn.

You know from experience that their fleece will grow out again so for now you breathe a sigh of relief that shearing day is a memory. You can relax.

Except…“The Question” looms… What do you do with the fleece?

The answer can be as individual as your alpacas. Do you process the fiber yourself? Do you put it in the barn and ignore it, hoping it will disappear before you must build another barn? Do you take a leap of faith by sending it away to a cooperative and believing that indeed you will see it again, spun into cloud-soft yarn or manufactured into some of the warm, cozy products that make alpaca fleece so desirable in the first place? Do you send this hard-won fleece to a mini-mill? Have you considered the likely costs and probable profits of the various options? Do you even know about all the options? What is an alpaca fiber producer to do?

You may consider joining a fiber cooperative.

According to its website, The Alpaca Fiber Cooperative of North America, Inc. (AFCNA) is an agricultural cooperative formed and wholly owned by North American alpaca fiber producers. Its members are part of an established community of alpaca breeders who produce quality alpaca products in the USA on an industrial scale. Shareholders provide the capital needed for the business to operate, and provide the fiber to make the products. They take responsibility as member/owners to help to improve and to promote alpaca products.

AFCNA membership comprises alpaca fiber producers who have purchased one share of voting common stock in the co-op. Incorporated in 1998, AFCNA has its headquarters in Decatur, Tennessee. A permanent staff provides cooperative administration, product manufacturing management, product sales and fulfillment (packing & shipping) and customer services. A seven to 15 member-elected volunteer Board of Directors guides AFCNA’s business and finances.

“Our current member count is 1644,” reports AFCNA president Larry Vellozzi. “The only state where AFCNA does not have membership representation is Alaska. Pennsylvania and New Jersey represent 78 and 58 members respectively.”

 Vellozzi is optimistic about AFCNA’s future.

“We have increased the Decatur office with a more efficient staff,” he says. “We have three full-time sorters/graders handling more than 25,000 pounds of fiber that was collected in 2010. This represents an increase in both quantity and quality of fiber submitted before 2010.”

“In three of the last four years,” Vellozzi continues. “AFCNA earned a profit and made patronage distributions.  In fact, 2010 was a banner year for the co-op. Our membership rolls increased by 120, we brought the sorting operation in-house and improved the production chain. We anticipate similar if not better results for 2011, with full-year impact of the improvements we implemented in 2010 and anticipated production of new American-made products.”

Research indicates the good news that cooperatives are paying out dividends to members and working for the good of the alpaca industry. In December 2010, AFCNA began issuing patron dividends to 492 participants in the fiber collections of 2008 and 2009, resulting in an average payout of $117.15. The highest check sent out was for $2,261.97.

Former AFCNA President and Director Daryl Goodrich of Angel Wood Alpaca Farm, LLC, remains an enthusiastic member and supporter of the fiber co-op. “In 2010, we sent to AFCNA 125 pounds of fiber,” he reports. “This year (2010) we received $175.00 from AFCNA as our patronage distribution. AFCNA will distribute more profit money in future years as the amount of fiber submitted grows. More fiber equals more AFCNA net income to be distributed. Overhead costs are covered so additional fiber submissions will grow net income fast.”

Goodrich is concerned about additional fiber co-ops coming into play. “Intra-industry competition resulting from splintering of the industry into many independent entrepreneur processors will sabotage the success of the industry,” says Goodrich. “Competition among the parts of an industry holds the industry back.”

The competition Goodrich refers to is North American Alpaca Fiber Producers (NAAFP). New to the agricultural cooperative scene, NAAFP is located in Idaho. Established in September 2008, NAAFP boasts a membership of 282 and a payout of $27,841.28 for 608 items sold on behalf of members. In 2010, they reported a 25% increase in membership and a 38% increase for fiber submitted by members.

“As the economy worsened, more owners began to focus on fiber as an income producer out of necessity, so there has been a silver lining to the recessions,” says Pamela Harwood, newly elected President of NAAFP’s Board of Directors. “Alpacas are fiber animals after all. Things will eventually improve, and better systems will be in place to get more and more fiber into more profitable production and out into the world.”

NAAFP’s website states “NAAFP was created to establish the highest level of quality alpaca products from fiber produced and processed in North America by alpaca fiber producers who have their fleece sorted by a certified fiber sorter using the Certified Sorted™ system.”

The use of that Certified Sorted™ system represents the main difference between NAAFP and AFCNA. Goodrich contends that AFCNA is better suited for alpaca fiber processing as an agricultural cooperative because the farmer is the big winner. In contrast, he says, “NAAFP is a cooperative, but it is tied to using the services of an entrepreneur based sorting provider.”

“NAAFP uses the Certified Sorted™ system to guarantee that the same strict standard is used on all fiber coming in,” says Harwood. “Sorting and grading all fiber before it enters the co-op,” she states, “is efficient, cost-effective, and assures members every ounce received is processed and none is thrown away.”

“Sorting certification, apprenticeship, continuing education, and recertification are overseen by Idaho-based Coarse Broads, Inc. The sorters are self-employed but must follow the system as outlined by Coarse Boards, Inc. CBI has developed and refined a sorting system that assures efficiency and consistency among sorters and apprentices across the country.”

As for the system used by AFCNA, Goodrich says, “AFCNA sorts and grades all submitted fiber. Quality is assured because sorting is all done at one place with the same people and there are performance quality checks. And, efficiency is achieved because sorting is done in large volume.”

Who knew that you could be employed sorting alpaca fiber?! NAAFP members hire their own sorters or apprentice sorters to sort the fleece either on shearing day or on any day thereafter. The sorter goes to the farm or the breeder ships the fiber to the sorter.

“Based on the information from the Individual Sort Report, members gain a better understanding of what their herds are producing and what to look for as they make future breeding decisions,” says Harwood.

AFCNA also provides sort reports to its members.

“When the bag of fleece is graded in Decatur, a form is filled out by the grader,” explains Vellozzi. “At the end of the day, those forms are scanned and emailed to that particular member.  The response from the membership has been very favorable.”

Jody Hezoucky is a certified sorter who owns Lana Bella Alpaca Farm in Carrollton, Ohio. She was an AFCNA member from its beginnings, serving for a time on its Board of Directors. Over the years, she became dismayed with AFCNA because of such factors as low return on her fiber investment, discovery of store products priced higher than what she could buy from other vendors, finding herself “stuck” with products she could not sell, and the fact that some fiber was being classified as unusable then tossed into the trash.

“The AFCNA was not designed to pay members for fiber based on fiber,” says Hezoucky. “It was designed to pay members profit sharing based on fiber submitted, if and when the co-op made a profit from selling alpaca yarns and finished goods.”

“The profit on 10 pounds of grade 5 fiber (duvets) is different from the profit on 10 pounds of grade 3 fiber (coned knitting yarn),” states Harwood.

“The two most profitable SKUs for AFCNA were the socks and the yarn,” continues Hezoucky. “When I learned that AFCNA sold the yarn division and the sock machine was when I was done. Now they are even buying imported alpaca products and selling them. In my opinion, that is not what a US co-op should be doing to promote North American alpaca.”

Like AFCNA, NAAFP members can sell their USA-made products themselves or they can have the co-ops sell their products wholesale. This is the basic principal of co-op sales at work. Profits vary based on the amount of members’ fiber in a given production run and according to the items produced.

“The NAAFP co-op offers us the ability to submit all grades of our fiber, take advantage of reduced processing cost, have flexible selling options, and most importantly make a profit from our fiber that justifies being alpaca breeders,” says Hezoucky. “As members we own our fiber throughout the production process and can get back 100% of the product that our fiber produces. We can opt to have the co-op sell our portion at wholesale. We can also do a combination of retail or wholesale by product.”
Both NAAFP and AFCNA enable members to buy additional product at wholesale. For example, NAAFP currently produces eight grades of roving, five different natural or hand-dyed yarns, hats, gloves, ankle socks, boot socks, and duvets.

“Members of AFCNA may buy at wholesale prices any products AFCNA sells,” says Goodrich. “To help farmer members stock their farm stores, AFCNA not only makes available to members all products it makes from member fiber. It also buys imported Peruvian products to round out the product line until it can create more diversity in product from member fiber. So members can make money from submitting their fiber and also from selling products at retail that it buys from AFCNA at wholesale. These products include five different 100% alpaca yarns, four alpaca/merino blend yarns, sweaters, socks, hats, gloves, bags, throws, toy alpacas and teddy bears.”

JoAnne Givler of YKnot Alpacas in Germansville, Pennsylvania likes being able to purchase products made in the USA; however, she has this is say about the Peruvian imports: “I don’t care for the fact that they (AFCNA) sell products made other than in the USA. It’s an American co-op and we should stick to the products being made in the USA.”

Maggie Wright of Kraussdale Alpacas in East Greenville, Pennsylvania originally joined AFCNA to have access to products for her farm store. “Now I like the ability as an affiliate to provide a shopping link on my website,” says Wright. She would like to see the co-op pursue alternative products, like felt or rugs, for lower grade fiber. “The co-op seems to want the best fiber the farm turns out,” she says, “and I need that for having my yarn and roving produced for my store.”

So. Now you have decided that agricultural cooperatives are the way to go with your fiber. You want to pool resources with other alpaca breeders, to be part of something larger than yourself and your farm, and to maximize profit from your fiber. Moreover, you do not have the time, desire, space, sales savvy or marketing skills to market your yarn.

Which cooperative do you choose: AFCNA or NAAFP?

Dani McKenzie, owner of Longbottom Meadows in Roy, Washington looked at both business models and concluded that AFCNA’s current model does not drive profit for alpaca owners.

“By requiring owners to pay for each stage of the process, NAAFP has been able to run in the black from day one,” says McKenzie. “NAAFP doesn’t get loans to cover the cost of processing a product run and have to take the cost of the loan out of the profits given to the business owners. I’m a very firm believer that if you make things too easy for people -- they don’t have to sort fiber before they ship to the co-op and they don’t have to pay anything up front to have the product created -- you’re not actually encouraging ‘business behavior’ nor encouraging people to participate in the process.”

Despite her enthusiasm for NAAFP’s methodology, McKenzie reports disappointment in the lag time involved in the product run process. “I turned in my fiber last August,” she says, “but it was only pulled into a run recently and the product won’t be available for several months.”

Back to the question of which fiber cooperative to choose. Perhaps you want to follow the purest agricultural model and not share any profits with an entrepreneur. Perhaps you decide by weighing the convenience of one co-op versus the other. Do you want to use a certified sorter? Do you want to send your fleece off to be done with it?

Ask around. Find fellow breeders who have used one or the other co-op and ask them about their experiences. Analyze each co-op’s product. Do you prefer the quality of one product to the other? Review co-op websites. Does one sell products that interest you, the farmer/retailer? Question members of the boards of directors. If possible, calculate the return you can expect on your fleece under each model.

Finally, be confident that the co-op you choose meets the following key criteria:
clear, understandable information about the co-op’s financial operations is readily available to you as a member
you as a member can understand the co-op’s processes
you as a member are confident in the sorter who sorts your fleece for a reasonable price
you as a member receive frequent and meaningful communication, timely pay-outs and high-quality products.

The best news to fiber producers is that co-ops like AFCNA and NAAFP want and need your alpaca fiber.

“We can always use more fiber,” says Harwood. “We can produce more colors if you have, say, enough black fiber for a black yarn as well as for blended gray and rose gray yarns. There are bulk discounts offered by mills, too: the more fiber in one run, the lower the cost per pound. Our current inventory is very low. In fact, many of the products are sold out until the 2010 fiber runs are finished, which will be in the next several months.”

The “What Are You Doing With Your Alpaca Fleece?” series will continue in next month’s newsletter with a look at mini-mills.

Anne Spreng is a freelance writer and alpaca fiber artist who resides in Allentown, Pennsylvania. Diane Beauchner owns Shepherd Hills Alpacas in Wescosville, Pennsylvania, is Editor of the MAPACA newsletter and sells her yarn to Anne to create beautiful alpaca products.
Contact Diane at dbeau@ptd.net or visit www.shepherdhillsalpacas.com