The New Zealand Petroleum Exploration and Production Association says it will pick up the extra costs of testing milk from farms that have used oil and gas drilling waste on their land.
But Fonterra is standing by a decision to no longer accept milk from any farms spreading petroleum-tainted mud.
It is 100% confident there are no food safety issues from cows grazing on buried waste, but does not want to increase the costs of special testing being done on eight farms already.
The association says the oil and gas industry is happy to bear the extra testing costs and will be talking to Fonterra.
However, Fonterra said it will not accept a third party paying for testing because that would call into question the credibility of its testing regime.