New England Wool, which buys for its shareholding Italian processors Reda and Barberis, has announced any wool bought at auction next season from non-mulesed sheep would be paid a $A100 rebate per bale to cover the extra cost of flystrike prevention.
New Zealand Merino chief executive John Brakenridge said New England Wool was the largest auction buyer by value of New Zealand merino wool, and it was the first company to offer such a payment.
Reda also contracted growers to supply wool, and it would include a premium for non-mulesed sheep in its contracts.
"They are coming in a dual manner, through direct supply contracts with Reda and also through auction, combining Reda and Barberis through New England Wool."
Mulesing, where skin folds are cut off the breech of lambs to prevent fly strike, has become an emotive issue for animal welfare groups such as People for the ethical treatment of Animals (Peta).
The group has launched public shame campaigns against retailers selling wool it claims comes from mulesed sheep.
The Australian wool industry has been hit hard, but the New Zealand fine wool industry has quietly been working with growers to stop the practice.
Mr Brakenridge said the "vast majority" of New Zealand fine wool would come from non-mulesed sheep next season.
"I've been very impressed with farmers. They've realised the issue is not going to go away."
He said confrontation was not an option, but companies such as New England Wool recognised alternatives to mulesing, such as more frequent crutching and monitoring, were costly.
"This sort of leadership move from a prestigious company is going to assist growers through the process."
It also sent growers a signal about what consumers wanted.
"It's the market showing leadership and sending growers the correct signal, not just about mulesing, but around quality incentives."
NZM has an independently-monitored quality assurance programme, Zque, which quantified environmental and social stewardship of its suppliers.