Federated Farmers says overseas investors may think twice before investing in New Zealand because of the Crafar farms deal.
Its comments follow a warning by the Chinese embassy that future Chinese investment may hinge on the outcome of an application by the Shanghai Pengxin group, which wants to buy the 16 Crafar dairy farms.
The Government is awaiting a fresh Overseas Investment Office recommendation on the bid.
Federated Farmers president Bruce Wills says the protracted Crafar deal has not helped the country's image as an investment destination.
He says New Zealand is a trading nation which needs overseas investment.
However lobby group Save the Farms says the warning from the Chinese embassy is simply a bullying tactic.
Spokesperson Tony Bouchier says the timing of the statement is concerning.
"It just seems they are attempting to bully us into a decision that New Zealanders don't want."
Mr Bouchier says the public wants the Crafar farms to be kept in New Zealand hands.
The statement from the Chinese embassy is being dismissed as an empty threat by Labour and New Zealand First, while Finance Minister Bill English says all productive investments are welcome and are all subject to the same rules and regulations.