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There are two basic reasons for fiber production:
1. For personal use. For those who wish to be as self sufficient as possible, or for those who simply enjoy the process of making clothing or fabrics from start to finish, raising your own fiber animals can be rewarding.
2. For commercial purposes. As an economic enterprise, raising fiber follows the same rule as any other business - finding an underserved specialization, learning to do an exceptional job at it, and then learning to market it properly. It can be profitable, but not without good planning, good execution, and a fair amount of favorable conditions.
There is still a thriving natural fiber market. The demand fluctuates according to economic circumstances. A small cottage industry cannot compete with major fiber producers in the mainstream commercial markets. The true success potential lies with the artisan community. This market base is somewhat more affected by economic downturns, because it is not considered a necessity by people who have survival as their paramount concern. The self-sufficiency markets tend to grow during that time, but there is somewhat less monetary potential in those markets.
No matter what your purposes, startup costs are fairly sizeable - good fiber animals are costly, and processing equipment is also fairly pricey, since most of it is now specialty equipment. Wool carders, for example, are nearing $100 EACH in some markets, spinning wheels start in the $500 range, and a loom cannot be bought, even used, for less than a grand most of the time, even for a simple loom.
There is also a high learning curve, both in caring for the animals, and in handling the fiber. This is not a reason to shy away, just something to be aware of. You can't stumble into producing high quality fiber by accident, and you can't easily fumble your way into it. You'll need patience and attention to detail, and the ability to track statistics and make sense of how to improve when problems occur.
Many times, fiber is produced as a single income stream, in companionship with other revenue streams - the sale of animals, instructional resources, or other farming endeavors. Meat sheep producers though, have begun to favor hair sheep over wool sheep, because the cost of having sheep sheared can be more than the wool may be sold for.
Small producers can get around that, by selling direct to the customer. That means you have to do the shearing, cleaning, and possibly carding yourself rather than hiring it done, but it also means the profits are all yours, and not gobbled up by an endless string of middle-men.
Our recommendation is that you find a community of fiber artisans if producing fiber interests you. Not only can you learn from people within the group, you can also swap skills, to broaden the potential end products.
When I originally wrote this, I had absolutely NO interest in doing any of this myself. We have a website client who spins, dyes, and weaves natural fibers, so I gleaned a lot of information from her, so I was not without experience with the industry. I just had no desire to DO it.
Now I find myself impatient to purchase wool sheep, to learn to shear my own sheep by hand, to learn to spin (I'm already working on that), and to learn to weave, at least enough to keep the family in blankets and rugs, scarves and throws.
You never know when the bug will bite.