Commercial producers, brokers, exporters and spinners dominate the wool supply chain in South Africa. Until recently smallholder farmers in the Transkei region had limited access to a profitable market outlet for their wool. In response, the South African wool industry has taken the initiative to help local farmers by building shearing sheds, under which the local association can bulk the wool and trade directly with the brokers. More direct access to the wool brokers is a prerequisite for the farmer to develop a viable business. This article investigates on the effect of membership in the local shearing shed association on the farmers' revenue. A two-step regression model of the gross margin is used to analyse whether farmers selling through the local association have better financial records as compared to those who sell their wool to local traders. This article exemplifies how institutional innovation through local marketing associations can contribute to economic development in poor rural areas.