The Food and Grocery Council says a study calling for a 20 percent increase on staples such as bread, milk and cereal is lunacy.
The study by Auckland and Otago universities found taxing foods high in saturated fat and salt could save the lives of more than 2,400 people per year.
But the Food and Grocery Council said taxing staple items would put them out of the reach of many New Zealanders.
The council's chief executive, Katherine Rich, said the foods targeted by the suggested 20 percent tax increase were staples for many.
Mrs Rich said the proposed tax hike would make the everyday foods too expensive.
"Putting a 20 percent tax on eggs and milk and bread for example, on top of the 15 percent GST - you're inflating the price of those products by, ultimately, 35 percent.
"That would make them the most highly taxed food items in the world."
She said following the tobacco taxation model for food won't work unless the tax was levied at a much higher rate than the proposed 20 percent.
"The tobacco model doesn't work for food because people can give up smoking - they can't give up food.
"People need to eat to survive and so that's why affordability is very important."
Report co-author, Cliona Ni Mhurchu, said taxation would lead to behavioural change.
"We know from previous research around tobacco, and a lot of the work that's been done, that price is a really big lever in terms of driving behaviour change, and also there are an increasing number of studies coming out overseas, as well, that suggest that food pricing is important too."
She said the proposed tax increase was affordable.
Professor Ni Mhurchu said the study also called for a 20 percent subsidy on fruit and vegetables and that would balance out any tax increase.
A dietician based in Wellington, Angela Phillips, agreed taxation would invoke a behavioural change.
But she said if taxation was being looked at, regulators needed to target only unhealthy foods.
"If they can actually make sure that it is high sugar breakfast cereals or really high saturated fat breakfast cereals rather than breakfast cereals as a whole then there would be some benefit from that."
Ms Phillips said the Government needs to do something about the way people consume food as no health strategy that targets obesity had worked so far.
Salvation Army Social Services Secretary Pam Waugh said people were already struggling to cover food costs.
She said any tax increase would be a blow to family budgets. "We could see it having a huge impact on families especially around the children. If you have taxes on things like milk, cheese, eggs, yoghurt and cereals, that's the food we want children eating as well as their fruit and veggies."
She accepted the argument the tax increase could save lives, but said education could also achieve positive results.