Fonterra is encouraging farmers to limit the amount of palm kernel extract (PKE) they use as a supplementary feed for dairy cows.
The co-operative is recommending its suppliers feed a maximum of 3 kgs per cow per day.
Farm advisers spoken to by Radio New Zealand said some farmers were currently feeding out 6 to 9 kgs per cow per day, particularly during dry periods.
Fonterra's group director of co-operative affairs, Miles Hurrell, said consumers paid a premium for grass-fed milk products, and Fonterra wanted to increase that value by ensuring New Zealand milk came from predominantly grass-fed cows.
"More and more around the world we are seeing consumers demand to know where their food comes from and want clarity around what's in their food," he said.
"We have a competitive advantage here in New Zealand and it's important we protect that."
Mr Hurrell said the co-operative had seen the use of PKE increasing over time.
"The most important thing to note is this is a guideline we have put out and we will certainly be working with all our farmers," he said.
"Every farmer is different and so we'll be working with farmers who potentially use more PKE than others to understand what the impacts might be on their systems."
He said the new guideline would be rolled out over the next few weeks, with moves to increase awareness among Fonterra's farmers starting immediately.
"We won't be wanting to compromise animal welfare through this so we'll be watching animal welfare as part of the system we have."