Support your local shepherds, spinners, and retailers!
Beaverslide Yarn is a great example of the kind of business I want to support. They raise and shear their own sheep, in as humane and low-impact a fashion as possible. They have the fleeces sent to a mill which processes them with the minimum amount of carbon footprint. Beaverslide isn't local to me (they operate out of Montana, and I am in Washington) but it is a small family-owned business that treats their animals well.
Another great example is Island Fibers, a yarn producer on nearby Lopez Island. They make yarn out of fleeces purchased from local shepherds. A dollar spent on Island Fibers is a dollar spent supporting the small Lopez Island community, both the spinners and the sheep farmers.
You don't have to be this extreme about it, of course. Considering that Red Heart Super Saver is perennially vying for the #1 spot on Ravelry's "Most Stashed" list, there are a lot of smaller yarn producers (from Cascade to Eslbeth Lavold) that will give you more community impact bang for your buck than the stuff you find at the big box craft stores.
Speaking of big box craft stores, the best place to find "small yarn" is at your local yarn store. Your LYS supports your community and offers services - like help picking colors or fixing your knitting - that you won't find at Joann's!
The next place to find organic or locally produced yarn is by cruising Clara Parkes' reviews, from those online at her Knitter's Review website, to those in her two books, the Knitter's Book of Yarn and Knitter's Book of Wool. Parkes is passionate about yarn from small independent producers, and she won't steer you wrong!
Etsy is a great place to find handspun yarn. Almost TOO great, to tell you the truth - it's hard to skim the listings and only choose one or two yarns to buy! There are a mind-boggling number of independent hand-spinners selling their yarn on Etsy. The only down side is that you won't find much consistency, so be sure to buy enough yarn for a single project.
Finally, Google is your pal! Do searches like "[location] yarn" where [location] is your town, county, or state. I have found yarn producers almost literally in my own back yard this way!