Trade concerns have led to the suspension of nitrification inhibitors used by some farmers after residues of its active ingredient DCD were found in Fonterra's milk.
It is believed the products have been used by about 500 dairy farmers to reduce nitrogen leaching and emissions and boost grass growth.
Fonterra detected the presence of the compound DCD during routine testing of its milk.
The United States Food and Drug Administration added DCD to its list of substances to test for last year - leading to testing for the compound in New Zealand.
Ravensdown and Ballance Agri-Nutrients have both withdrawn their nitrification inhibitors from the market.
Ravensdown chief executive Greg Campbell said trade is paramount and that's why the company withdrew its Eco-N product.
DCD is also used in the production of melamine, the compound which left Chinese babies sick and some dead, after they drank milk powder contaminated with melamine.
However the Ministry for Primary Industries (MPI) says there are no health concerns.
MPI deputy general director standards Carol Barnao said only low levels of the compound were detected after extensive testing - and no melamine.
She said small amounts of melamine can be produced as part of the DCD manufacture.
Ms Barnao said the ministry has set up a working group with dairy industry and fertiliser company representatives to look at the future use of DCD.
Technical group
A technical working group will be established to look at a number of areas such as possible changes in practices on farms to ensure that when DCD is applied on pasture it has totally degraded.
"We're also looking at whether we need to initiate an international standard to recognise the safety of this product, but also the benefits of this product."
Ms Barnao said the product is thought to be very positive and stable from an environmental point of view and there are no food safety concerns.
But she said the ministry recognises consumer concerns about any residue.
While there are trade issues, the dairy industry has lost a valuable tool which helped it stem nutrient losses on farms.
Dairy NZ chief executive Tim Mackle said it's disappointing because it's a very useful tool for farmers in terms of managing their nutrient loss on farms.
He said hopefully pragmatic solutions can be found to enable the product to be back on the New Zealand market as quickly as possible.
