John E. Walsh, Jr.

For alpaca sweaters to be knitted in Austria alpaca fiber had to be shipped to Liverpool, England, the major seaport for alpaca imports.  At the Liverpool auctions alpaca fiber was directly sold to spinning companies in England or companies in Europe.  Wherever the yam was produced, it would be sent by rail to Austria for knitting.  The sweaters would then be sent by rail to a European port, probably Bremen or Genoa, and shipped to New York or Boston. From there they would be sent by rail or truck to eastern, southern, and rnidwestem cities.

After Robert Morris calculated the shipping and handling costs, duties, and middleman profits, he concluded that a profitable business could be developed if high-quality alpaca sweaters could be knitted in Peru.

A Visit to Peru

Robert Morris wasted no time in following up on his idea.  He flew to Lima and through the efforts of the commercial attache of the U.S. Embassy in Lima, he hired Jose Bermudez, a Peruvian, who had many years' experience in buying alpaca products for sale primarily to tourists.  Jose Bermudez pointed out that alpaca sweaters Were knitted in Peru in large numbers in several cities of the south as well as in Lima.  These sweaters were the weight of light sld sweaters but were more coarse. Sometimes, they would shed, especially over a white shirt.  More attractive, lighter, softer, multi-colored baby alpaca sweaters were also sold in Lima.  They were sold in the better tourist shops and some were exported to specialty shops in the United States.  The fine solid colored alpaca sweaters promoted in the United States by golfer Arnold Palmer, however, were knitted in Austria.

In a conversation with Robert Morris, Jose Bermudez detailed some background about the alpaca sweater business:

I think I that tariff escalation keeps Peruvian alpaca sweaters from being exported to the United States for the mass market .  The escalation of tariffs in developed countries is often a substantial barrier to the development of industries elsewhere based on local raw materials.  By escalation I mean the existence of one tariff for raw materials, a higher tariff for semi-processed goods, and an even higher tariff for fully processed goods.

It is also possible that, in the special case of Peruvian-made alpaca sweaters, limited overall production is not sufficient to justify advertising.  And don't forget alpaca is a difficult fiber to handle.  I understand that it is more like hair than wool and builds up tremendous amounts of static when being spun.

Within a few minutes, they were on their way to Morris' first appointment.  For the rest of that day and all of the next, they visited business offices and organizations listed on his schedule.

Robert Morris recorded in a notebook the most important and representative information gained from his visits in Lima:

1. Alpaca fiber is like human hair but not as wiry.
   
 
2. Currently, the most common end use of the fiber is in coatings and pile fabrics.  Synthetic fibers have been tried as substitutes for alpaca, but they lack the quality requirements demanded by the public. Alpaca is a live fiber; it will bounce back if wetted and will not mat down as many other lining fabrics do.  In the U.S., alpaca is used for pile fabrics in low-priced coats.  In England, many yards of fleece coatings are made for women's wear. These markets differ widely.  In the U.S. 95% of alpaca imports are of fleece and 5% are of inferior grade; in England the market will use 50% fleece and 50% inferior.
   
 
3. Fads using quality fibers-such as alpaca, camel hair, cashmere, and many others-have normally lasted a few seasons at best.  There is no vital need for them anywhere, despite their inherent advantages.  It is not unusual for these fibers to not return to the market in worthwhile quantities.  The market for alpaca for high-styled sweaters and coatings has had its good and bad years.  The current fad for alpaca sweaters, beautiful as they are, may be starting to decline.  High- priced, 100% alpaca is being adulterated with other fibers; the results are price reductions, inferior quality, and decreases in demand.
   
 
4. The only people presently promoting alpaca are the dealers, who go to the mills and try to interest the manager, stylist, superintendent, or designer in using the fiber in a salable article either in the knit or woven line.  The efforts of the dealers to get alpaca into the mainstream of fabrics lack organized support in the form of promotion or advertising campaigns.
   
 
5. Some efforts have been made in Lima to develop handicraft programs.  I expect to see similar programs in other cities.

Alpacas are sheared during the warmest months of the year, November and December.  The fleece is then gathered at important collection points, such as the cities of Cusco, Puno, and Juliaca, where they are wound into small bundles for ease of handling and transportation and shipped to Arequipa.  There, examiners empty the sacks and check carefully to see that the contents have been properly represented and that sand has not been added to increase the weight, since the Indians frequently add sand.  The fleece is then weighed and sorted into seven basic colors-piebald, black, dark brown, light brown, fawn, gray, and white-and graded for quality by skilled women.  The two basic grades of quality, fleece and inferior, are sent to presses for baling, each bale weighing 220 pounds or 100 kilograms.  About 80% of the total yearly yield of alpaca comes to Arequipa and then goes by rail or truck to the port of Mollendo, 100 miles away, for export to world markets. The remaining 20%, primarily inferiors, is shipped from Callao (the seaport of Lima) or Tacna.

For the next two days, they visited business offices and alpaca scouring and sorting plants.  Many of the discussions were in English, but Jose Bermudez served as an interpreter when the persons interviewed spoke only Spanish.

The discussion with Mr. George Bentley, general manager of the Harrison Company, a manufacturer of alpaca combed yarns, tops (semi-processed wool), and waste, is recorded for the light it throws on Morris' investigation:

Robert Morris: "Mr. Bentley, why are the highest-quality alpaca sweaters knitted in Austria?"

George Bentley: "Simply because the most efficient knitters, like Lemmermeyer, are in Austria. The most experienced topmakers and spinners are in Bradford, England, the traditional market for alpaca.  In order to produce a high-quality sweater of luxury style, the knitters require a highly elaborate yarn, and spinners in England specialize in the production of these yarns."

Robert Morris: "What are you doing to improve Peruvian yarn and knitting techniques?"

George Bentley: "Two combing and spinning plants are already operating, and others are planned.  There are also several smaller and medium-sized knitting factories in Arequipa, but they do not produce articles of high quality for export.  Several projects are under study to improve the production of sweaters in Peru."

Robert Morris: "I have been told that prices for alpaca fluctuate widely. Can you tell me why?"

George Bentley: "While we have no exact statistics about price fluctuations during the last two years, white fleece has been sold at less than $1.00 per pound and up to $4.00 F.O.B.  Other colors have different prices, which also fluctuate according to supply and demand, depending on the fashion trend."

Gathering Information on the Alpaca Industry

On Monday and Tuesday Morris and Bermudez visited organizations, banks, and a technical university in Puno and hired a car to visit two organizations and a handicraft cooperative in nearby Juliaca.

Morris made notes on the most important and representative information gathered in Arequipa, Tacna, Puno, and Juhaca.

1. An issue that must be confronted is the change in manufacturing that has occurred in the past two decades.  Mills of modem vintage, which have only high-speed, high-productivity, fully automated machinery are not appropriate for a fiber like alpaca. The breakdown of the entire alpaca clip into grades and colors results in "small-lot” production units.  Large production plants refuse to process fabrics of small quantities.


2. Many people in southern Peru are of the impression that Peru should get into the manufacture of top (semi-processed wool). The bulk of production is shipped in the raw state.
   

3. The present system of grading and sorting alpaca fiber is based on the use of hands and eyes.
 
4. Workers in the higher altitudes have difficulty adjusting to indoor machine work.
 
5. A plentiful supply of good water is necessary.  Filtration and softening are too costly.
 
6. Adequate and reliable power sources are basic, because in any of the processing stages of alpaca, a power failure can cause an operational breakdown, which is expensive.
 
7. Proper climatic conditions, whether natural or built-in, are necessary.  Temperature and humidity should be kept constant.
 
8. Alpaca fiber in its natural color will not fade. The largest end use is in pile fabrics for low-priced coatings and inner linings in inexpensive raincoats.
 
9. The present Peruvian export tax on alpaca is almost equal to the producer's price.
 
10. Efforts have been made in the cities outside Lima to develop handicraft programs.
 
11. Approximately one million people in Peru depend on the alpaca crop in one way or another.
 
12. There has been extensive criticism of the exporting of alpaca fiber by Bolivia in small amounts at a distressed price to the Liverpool auction, which established a new world price affecting the alpaca industry of Peru.

The emphasis many Peruvians placed on alpaca top (semi-processed wool) bothered him.  He believed there was no shortage of top combing machinery in the world and with the duty differential between raw fiber and top, which is considered a manufactured product, as well as the quality problem which would take years to overcome, it did not seem practical to put up plants in Peru to produce as an end product alpaca top. It would only be a "white elephant."  The machinery cost would be high, and the training of workers would be costly.  Considerable time and money would have to be expended to produce a quality product good enough to export.  For top to bring an adequate return, it would require advantages that he did not see in Peru at present.  Quality and price would have to be advantageous to a buyer in the world market.

On the other hand, if yarn could be produced, a ready market in mills lacking machinery could be expected.

He arrived in the United States shortly after midnight.  On Monday morning, he called Mr. Harold Norden of the Durant Corporation, a friend of George Bentley's.  Harold Norden introduced him over the telephone to Dr. Ricardo Lopez, who ran a wool fiber testing laboratory.

Realities of the Alpaca Industry

Comments of Harold Norden

The Durant Corporation is a major American producer of alpaca top from Peru and Bolivia.  The alpaca fleece is shipped from Peru to New York City, where it passes customs and is then sent to scouring mills for scouring and combing.  Two years ago alpaca top sold for $5.60 per pound.  Today, it is selling for about $2.90 per pound. The alpaca combing mills are located in Rhode Island and New York.  Importers like myself pay these mills a combing charge.  Alpaca before it is scoured is called greasy alpaca. Scouring takes out the dust, dirt, and vegetable matter in the fiber.  As a rule of thumb, there is a 12% loss in fiber weight after scouring.  At one time, there was a 9 cents import duty charge per pound for clean alpaca.  The rate was reduced to 6 cents per pound clean and 5 ½ cents per pound greasy.  As of November of last year, it was further reduced to 4 cents per pound clean and 31/2 cents per pound greasy.  I suspect in five years there will be no duty on alpaca fiber.

Alpaca fiber is the strongest natural fiber in the world.  It can replace wool or be combined with wool.  Further, it has a lustrous sheen.

Alpaca fiber is used today primarily in the manufacture of sweaters and alpaca pile.  No woolen mills in the United States today will use it.  The darker shades of alpaca are usually used in coats, the lighter shades for sweaters.

Comments of Dr. Ricardo Lopez

Complete vertical integration is needed in the alpaca industry.  In concrete terms, this means myriad support industries. For example, the following are needed for a vertically integrated knitting operation:  a scouring mill, a top-making mill, a spinning mill, a dyeing mill, and a finishing mill.  The scouring mill and the other support mills require extensive capital investment, but they do not provide a large enough price advantage.  Unfortunately, there is only peripheral support for investment in Peru.  Moreover, mere possession of the plant and equipment is not enough.  Scouring, combing, spinning, and dyeing are about half science and technology and half art.  Alpaca fibers differ in color, texture, and chemical properties.  When finished products seem uniform in color, it is because they were dyed by highly talented and skilled persons who were able to blend various lots of alpaca with different dyes to make a uniformly colored product. This skill and art cannot be learned quickly, and those who know it do not give it away freely.

In addition to the costs involved for supporting facilities and the skill and techniques required, there is still another problem. Colors and styles for alpaca products are affected by the vagaries of fashion. The alpaca business is evanescent.  Several years ago black, charcoal gray, and dark brown were the desired colors in alpaca sweaters.  The cheaper colors, such as piebald and light brown, could be used.  Today the emphasis is on lighter and brighter colors for which the white alpaca fleece must be used.  If the manufacturer is too far away from the market, which is primarily the United States, he may be too slow to react to changes in fashion.  The result, of course, will be unsold finished goods inventories.

The situation in Peru is analogous to that in Turkey. Most of the world's mohair, and the highest quality mohair, comes from Turkey, but the yam is not woven there because the country has no scouring, sizing, dyeing, and finishing plants.  There is no capital for investment, and Turkey is too far removed from the European and American markets.

Don't forget, the alpaca trade is self-defeating. It is a greedy trade. There is no reason in the world why an alpaca sweater should sell for $100 or more, but it is considered a luxury item.  As the demand for the item goes up, the price of the fiber escalates rapidly.  With the increase in price you would expect the Indians to produce more fiber.  Quite the opposite, they produce less or stop completely.  They are not concerned with enlarging their incomes beyond their customary level.  I wish there would be some way we could increase their desire to want more things, because their attitude causes alpaca fiber prices to fluctuate wildly.  The price for alpaca top now is about $3 per pound, but several years ago it rose to as high as $7 per pound.  It takes about one pound to make a man's cardigan sweater.

Wool is a more stable product.  Unlike alpaca, it is produced in several areas of the world.  There is much greater competition and hence more price stability.

I suspect that Peru and Bolivia could produce 30 million pounds of alpaca a year, but there is no market for it.  Consequently, the Indians do not collect all that is grown.  Further, the government places a high export tax on the product.  The government and the growers appear to cut off their nose to spite their face, because each wants a high percentage of tax and a high percentage of profit.  The difference between alpaca and the better grades of wool is not very great, although alpaca is superior to wool and alpaca and wool blends are superior to wool itself.  The large American companies, like Burlington Mills, are afraid to handle alpaca because of its price variations.  In fact, in addition to the Durant Corporation, there are only three or four companies in the United States that import alpaca fiber.

Time for Decisions

Now, Robert Morris was ready to decide whether he should invest in some segment of the alpaca industry in Peru.  He knew that 96% of the total alpaca fiber exported to the U.S. was fleece as opposed to 4% of inferior fiber.  On the other hand, the United Kingdom imported 56% of inferior fiber and 44% of fleece.  His interpretation of these percentages was that the present use for alpaca fiber in the United States was for sweaters.  In the United Kingdom the inferior fibers were used for lining in coats.  He would still have to explore other profitable uses of the fiber.

Morris would have to investigate the best way to evaluate marketing and promoting alpaca products in the United States and possibly Europe.  He would also have to motivate Peruvian manufacturers to keep up with the latest fashion trends in the United States and Europe.  He recalled that when looking for an alpaca tie in a department store in Lima, the width was not in keeping with lapel sizes of suits and sportcoats sold in fashionable American and European stores.

He planned to contact U.S. government officials in the Agency for International Development (AID) to seek industrial incentives.  Companies processing alpaca might provide him information on processing, training, and licensing costs or even a joint venture partner.  They might even recommend specific production stages suited to the Peruvian alpaca industry.  Regardless, he would soon have to make a decision on what investments, if any, he should make in the Peruvian alpaca industry.

Walsh, J. E., Jr. ( 1994). "The Alpaca Industry of Peru."  International business case studies for the
     multicultural marketplace.  Eds., R. T. Moran, D. O. Braaten, and J. E. Walsh, Jr. Houston:
     Gulf Publishing.