Crown Research Institute AgResearch is defending proposed plans to develop medicines from genetically-modified animals with the help of an overseas biotechnology company.
Lobby group GE-Free New Zealand is warning that a failed joint venture could be more detrimental to the country's international reputation than the contaminated milk scandal in China.
Four Chinese children have died and more than 53,000 have been made ill after they consumed milk laced with the industrial chemical melamine.
Twenty-two companies in China have been implicated in the scandal, including the Sanlu Group, which is part owned by New Zealand dairy giant Fonterra.
GE-Free New Zealand says the scandal in China shows how easily New Zealand's "clean, green" reputation can be damaged.
A spokesperson, Jon Carapiet, says overseas companies involved in risky ventures with New Zealand companies should be more liable for any problems that occur. He says bonds should be put in place to cover clean-up expenses if something goes wrong.
He says New Zealand has already had to absorb the cost of cleaning up after Scottish company PPL Therapeutics struck financial difficulties part-way through a GE trial involving 3000 sheep near Tokoroa.
Mr Carapiet says he is worried that plans by AgResearch to partner with overseas companies to develop pharmaceuticals may also expose the institute and New Zealand's brand to dangerous risks.
But AgResearch section manager Vish Vishwanath says he is bothered that the lobby group is highlighting its opposition to the studies by referring to an unrelated issue involving the suffering of thousands of children.
Dr Vishwanath says the institute carries out a lot of research into potential overseas partners and it would not form relationships that would damage New Zealand's "clean, green" reputation.
He says the company involved in the proposed trial, GTC Biotheraputics, has a very good track record, including having a drug for sale on the European market.
AgResearch's processes are already under scrutiny by many different agencies to ensure the public's safety, Dr Vishwanath says.