Joint venture company WoolCo has failed to raise the capital it was seeking to buy the country's largest wool exporter, Wool Services International (WSI).
WoolCo, a joint venture between farmer-owned Wool Equities and Christchurch-based investment bank Ocean Partners, was seeking $40 million from farmers and other investors to purchase WSI and prevent its sale to Cavalier Wool Holdings.
It believes sale to Cavalier will create a wool scouring monopoly in New Zealand.
WoolCo planned to use WSI as the basis for an integrated farmer-controlled wool marketing operation.
The High Court last month validated the Commerce Commission's decision to allow Cavalier to buy the company and Mr Heath says many farmers now believe a monopoly is inevitable.
WoolCo chair Cliff Heath said wool growers had expressed considerable support for the initiative but that did not translate into adequate financial support to allow the purchase.
He would not say exactly how much was raised but said the gap was too big and the money subscribed by investors will be returned.
Mr Heath says WoolCo had a limited time to try to raise the money because the deadline for appealing the High Court decision on the scouring monopoly expires this week.
But he says the farmer investment company Wool Equities will continue searching for ways to consolidate the industry.
"We believe that in the end what's is required is one strong company owned by farmers that can look after the interests of farmers."
It was the second attempt within a year to unify parts of the wool industry under farmer control.
In early 2011, a proposed farmer co-operative failed to reach its money raising target to buy the marketing company Wool Partners International.
Meanwhile, debate over the prospect of a scouring monopoly continues.
The managing director of Christchurch-based exporter John Marshall and Company, Peter Crone, estimates it would cost his firm an extra $200,000 - $300,000 a year in transport and other charges.
Mr Crone says the Commerce Commission also made a serious mistake with the last wool industry rationalisation, when it allowed a wool dumping and handling monopoly, which has resulted in significantly increased charges for greasy wool exports.
However, support has come from Curtis Wool Direct, which describes itself as the largest buyer and processor of British wool in the Northern Hemisphere. It also has buying and merchanting operations in New Zealand.
The firm says the Cavalier Wool Holdings proposal will bring about structural changes that the industry requires to keep a strong scouring sector in New Zealand, increase efficiencies, and stay competitive with international scourers.