The two wool businesses at opposite ends of the wool market are in discussion for a possible merger. Primary Wool Cooperative, a farmer-owned joint venture with wool broker Elders takes wool from farmers at the farm gate and on sells it, while Wool Equities manufactures wool for its grower shareholders, buys scoured wool and converts it into yarn and garments through its spinning, weaving and knitting operations.

According to Wool Equities Chairman Clifford Heath, there are enough synergies and opportunities for them to keep talking to see if they can pull the whole thing together.

The boards of Wool Equities, with 9,500 farmer shareholders, and Primary Wool, owned by about 1,200 farmers, met on Wednesday to discuss the proposed unity of the two entities for the benefit of shareholders and the wider wool industry.

The wool companies are eyeing the success of Fonterra Cooperative Group which operates the full chain, buying milk from its farmer shareholders, then manufacturing and selling the processed products such as milk powder, cheese and yoghurt.

Wool, once New Zealand's largest export, has lagged price gains of other agricultural commodities in recent times in the face of industry fragmentation and increased competition from cheaper synthetic rivals.

Wool Equities shares which trade on the stock exchange's NZAX index for smaller companies, last changed hands at 2 cents, having declined 77 per cent this year.

Milton, Otago-based Wool Equities operates in the finer end of the wool market for garments, using merino, mid-micron and crossbred lamb's wool and Palmerston North-based Primary Wool handles all types of wool.