In my (Sue's) experience, the biggest single factor in health of sheep is the correct balance of minerals, which permits their immune systems to function optimally. Thus for example, most sheep should not have much copper, though all need some, with downland and Texel sheep being particularly susceptible to copper poisoning, fine-woolled sheep intermediate, while Gotlands and Finnsheep are more tolerant than other breeds and indeed need a greater amount.
In the UK we use as much of our wool as possible and try to waste the minimum amount. To this end, the best and softest fibres are used for clothing, knitwear, knitting and weaving yarns. More coarse fibres are used in the production of carpet yarns. Any processing waste such as yarn ends or substandard fibre can be used in the production of felted underlay and insulation.