Federated Farmers is rejecting claims that the importation of palm kernel extract for dairy feed is contributing to the destruction of rainforests.
Dairy giant Fonterra is being accused of buying cheap cow feed at the expense of the environment.
Greenpeace says Fonterra imported a quarter of the world's palm kernel based animal feed for New Zealand cows last year.
Greenpeace says rainforests in Indonesia and Malaysia are cleared to produce cheap palm oil.
But Federated Farmers says the kernel is a waste product and the real cause of deforestation is consumer demand for palm oil based products.
Federated Farmers says it is more concerned by the biosecurity risks of the huge amount of uncertified palm kernel entering New Zealand.
Meanwhile, the Green Party is calling on the government and Fonterra to reduce the importation of palm kernel feed.
Palm kernel imports went from 0.4 tonnes in 1999 to 455,000 tonnes in 2007 and then to 1.1 million tonnes in 2008.
Green Party co-leader Russel Norman Norman says this was a quarter of all global palm kernel production which threatened not only the local grain industry but New Zealand's environmental reputation.
He says the government and Fonterra, which part owns rural supply chain RD1, had to do something to stop the "addiction" to the cheap but unsustainable palm kernel, which was being used to prop up unsustainable dairy farming.
Greenpeace NZ climate campaigner Simon Boxer also said it was a "scandal" that Fonterra was feeding its dairy cows a product that was directly contributing to the destruction of the world's remaining rainforests - and climate change.
Wilmar International, the company supplying kernel to RD1 to sell, was the world's largest trader of palm oils and kernel and had a bad reputation for rainforest destruction, he said.
But Fonterra sustainability manager John Hutchings told Radio New Zealand Wilmar International was a reputable company.
"They've been working very hard to ensure that all of their mills and plantations are RSPO - Round Table on Sustainable Palm Oil - certified, and they have almost completed that task."
Hutchings said palm kernel was an important feed supplement when grass was in short supply.
Last week chocolate maker Cadbury bowed to public pressure and
removed palm oil from its chocolate recipe.
