The importance of welfare losses resulting from discrepancies between Australian Wool Corporation and trade valuations of different grades of wool is discussed. Cross-sectional data are used to relate variations in wool attributes to variations in price during 1976-7 and a model is derived for determining grade prices that are consistent with market valuations of different grades. The spatial consistency of the model is tested using data from eleven time periods and from two geographically isolated markets. Comparisons between trade valuations and the grade price differentials used in the Minimum Reserve Price Scheme by the Australian Wool Corporation are made.