Badgers are wild animals. They are extremely vicious as well. They have not been domesticated, nor have any serious attempts been made. Badgers are a vermin and a pest in China. They are protected in the UK and many parts of Europe.
Nearly all badger hair is sourced from trappers in China. The prevailing method of hunting is to gas the badger sett. The entire animal is used. The pelts are sold to fur traders and the meat is sold for food in poor areas. Both the Eurasian Badger (Meles Meles)* and the Hog (Manchurian) Badger (Arctonyx Collaris) are harvested. The top three grades of badger hair are harvested from the Eurasian Badger. Two-band Finest and black badger hair come from the Hog Badger.
The pelts are then graded by the distributor and sold to knot manufacturers. Side note: These manufacturers either sell only knots or make whole brushes (either outsourcing the handle or also making them in-house like Edwin Jagger). The knot maker then removes the hair from the pelt and sorts the hair into the different grades of hair they sell.
Once the hair has been sorted by grade, the maker gathers the right amount of hair (by weight) and combs the hairs to remove any stray hairs and align the hairs properly. The hairs are then placed into a mold which gives the bulb the distinctive shape. The bottoms of the hairs are then tapped until all the tips are at the top. The knot is then bound with thread and the bottoms of the hairs cut off according to the desired loft. Finally, the plug is glued to the bottom to keep the knot in shape and the thread removed. Pictures of the process can be found here.
At this point, you may still be wondering where each grade of badger hair comes from. More....