A feed source used on New Zealand farms which is a by-product of deforestation will no longer be used by Landcorp by next year.
The Government entity on Monday announced it would no longer use palm kernel expeller (PKE) on its farms from the end of this financial year - a move it says won't affect costs and is also being welcomed by Greenpeace.
The product, which comes from the palm oil industry, is used as supplementary feed for cows in winter and also during droughts.
In 2013/14, Landcorp's peak year of using the supplement, it accounted for 6 percent of the average total diet of a dairy cow. Last year, that figure was less than 4 percent.
Landcorp chief executive Steven Carden says the organisation will move to another locally sourced alternative by June 2017.
"One of the real points of difference for New Zealand farming is our ability to grow grass and produce grass-fed animals. There is a growing interest in this food globally," he says.
"Landcorp wants our partners and customers to know they can trust that we farm sustainably and care for the environment. We need to anticipate shifting consumer expectations on how their food is produced and change how we farm accordingly."
He says the switch will be "virtually cost-neutral", but there'll be longer-term benefits when it comes to attracting new "premium" customers.
Landcorp's independent Environmental Reference Group chairman Guy Salmon acknowledged the large carbon footprint impact the palm kernel - imported from Southeast Asia - had.
Greenpeace says the decision is a win which it has been campaigning for for the past seven years - and they now have their sights set on Fonterra.
The palm oil industry plays a major part in the deforestation of tropical rainforests.
"It's not a good look for Kiwi farms to be linked to the destruction of the world's last remaining rainforests," spokesman Grant Rosoman says.
"As well as climate change impacts, the loss of rainforest habitat is pushing the orangutan and Sumatran tiger towards extinction - not the sort of thing you want associated with New Zealand food products."
The Green Party has also welcomed the decision, saying it undermines New Zealand's '100% pure' brand.
Around 60 percent of Landcorp's farms don't use PKE. It isn't used on any livestock farms and a few dairy farms are already PKE-free.