Interview: Michael Michell
What is the most important factor to consider in maintaining export levels at a time when global demand for alpaca is decreasing?
MICHAEL MICHELL: The key to succeeding in light of the current decline in demand for alpaca is to enhance the capacity for alpaca yarn production rather than merely focusing on exporting alpaca garments. Both expanding our yarn production and increasing our retail shops has proven to be equally important. Therefore, diversification in various stages of the production process – rather than focusing on one stage of the value chain – is key. Additionally, it is essential to invest in innovation, create solid distribution channels, and offer a high quality of service and product. If these factors are aligned, customers will be more likely to choose yarn from Peru as opposed to processing themselves domestically, even if this translates into possibly longer delivery times.
To what extent are falling alpaca prices impacting manufacturers, and how can this be minimised?
MICHELL: Alpaca prices have been dropping since around mid-2015, causing a sizeable decrease in profit margins. However, the main players in the sector have been able to maintain production and continue exporting similar volumes as in the past. This is because traditional importing markets continue to demand alpaca, even if it is on a reduced price level.
In Europe, for instance, the handknitting market has shown steady growth in recent years. It is undeniable that the sector is changing. Sales of alpaca garments have decreased, but driven by a shrinking European industry that has in turn reduced consumption, leaving China as the main importer of garments. Yarn sales, on the other hand, have shown consistent growth in the last five years, and it has proven to be more profitable.
Peru’s main alpaca manufacturers have also invested in enhancing their retail business. After several years of domestic expansion throughout the country’s urban centres, retailers are beginning to explore other markets, such as Chile. At the domestic level, the growth of inbound tourism has enhanced retail sales and will continue to do so as tourism develops. The main obstacle in further improving the retail business is the fact that it is capital driven. That the government is investing $10m in promoting the quality of Peruvian alpaca is clearly beneficial; however, it is the private sector that gives the product its reputation and invests on its own, enters new markets and builds lasting relations with new clients that previously demanded other materials, such as cashmere and mohair.
As well as promoting the Peruvian alpaca brand, the government should focus its efforts and resources on strengthening and protecting producers as well as guaranteeing fair compensation for the fibre they produce. When prices drop, producers are the most affected by the consequences. Each alpaca produces 2.3-2.7 kg of fibre per year, which is worth maybe around $35, but is not enough for the grower to sustain basic living standards. Such low production figures also represent a challenge for the survival of the alpaca growers given the harsh conditions high in the Andes and the tendency today for young generations to migrate to the cities. Hence, the government should look for a system to guarantee that producers generate enough income per alpaca – a floor price – to ensure a sustainable living standard. Protecting producers is key to guaranteeing the sustainability of the sector.
It is also important to take into account that illegal gold mining has grown considerably in recent years, offering growers an alternative means of making a living, thus shrinking the pool of suppliers. To overcome this and other challenges, and in addition to compensating producers in case of price reductions, the government must look to create a strategy that involves establishing collection centres and logistics networks to connect producers directly with the industry. As it is now, middlemen or merchants are the primary suppliers, reducing the price that can be attained by growers.
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