The Government says Sri Lankan tests which show high levels of DCD contamination in some batches of Fonterra milk powder are wrong.
The Sri Lankan Government has ordered the New Zealand dairy co-operative to recall two batches of milk powder, claiming it contained residue of the farm chemical dicyandiamide (DCD).
Fonterra has denied its products contain any trace of DCD. The company says the tests were flawed and the results incorrect, however it complied with the government directive and has completed the recall, AFP reports.
Prime Minister John Key said he believes the results of New Zealand testing which showed the powder is fine.
He says the New Zealand tests showed DCD residue levels well below accepted European standards.
"The sort of numbers that they were talking about were off the charts and just don't bear any resemblance to anything else we've ever seen."
Primary Industries Minister Nathan Guy said Fonterra has told him there are no problems with the product. "There are no food safety concerns with DCD," he said.
Mr Guy said the High Commissioner is talking with officials to establish the facts.
The Sri Lankan action is unrelated to the recall of Fonterra products from several countries this month after tests turned up bacteria in whey protein that could cause botulism.
Low-level residues of DCD were found by Fonterra in milk powder in September 2012, prompting New Zealand's Ministry for Primary Industries to suspend the chemical's use in January this year.
Products containing the chemical had been used on farmland to lower nitrate emissions while boosting grass growth.
In January, two of New Zealand's key markets for milk exports, Taiwan and China, announced they would begin testing Fonterra's milk products for DCD, and Sri Lanka has also required testing.
Sri Lanka's health ministry considers DCD to be a "toxic chemical" that should not be in milk and that is why it ordered the recall, spokesman Dharma Wanninayake told AFP.
The Ministry for Primary Industries and Fonterra said earlier this year there was no food safety risk from DCD residues. Fonterra said because the chemical is considered non-toxic, there are no international standards for levels of DCD in food.
Meanwhile, following the botulism scare, Sri Lanka suspended the release of New Zealand milk imports held at a port in Colombo until an internationally recognised laboratory certifies they are toxin free. Fonterra insists the batches at the port do not contain any harmful bacteria.
Sri Lanka imported milk and milk products worth $US307 million in 2012 with the bulk coming from New Zealand and Australia, the central bank says.
