The photo is from a 1988 issue of National Geographic, from an feature titled “Wool: Fabric of History.” (I cropped out a flash reflection, but there was also a knitted tea set in the photo.)
Here is the caption that Audrey also passed along:
The cat’s alive, but the rest of Noeline Black’s friends are stuffed. Created by Black and other members of the Fabric Art Company in Wellington, New Zeland, they reflect the humor and ironies of domestic life. Taking yarn from her own leg, the woman at her far right is unraveling herself to make the baby she has always wanted.
It seems as though the Fabric Art Company no longer exists (at least not to the internet), but there are a couple of photos from a 1983 gallery installation they did on the Art New Zealand website.