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Fertiliser companies Ravensdown and Ballance Agri-Nutrients have voluntarily suspended sales and use of DCD treatment on farmland until further notice.
DCD is a nitrification inhibitor used by the dairy industry to reduce nitrate leaching into waterways and greenhouse gas emissions.
ANZ senior trader Alex Sinton said New Zealand officials had ''probably done everything behind the scenes'' and ''smoothed things with the regulators''.
''It's probably not such a big story even though people are arguing about whether it led the kiwi lower.''
New Zealand's trading partners had been briefed and the Ministry of Primary Industries was working with primary producers to manage potential concerns for markets and consumers.
As no internationally set standard existed for DCD residues in food, because it had not been considered to have any impact on food safety, the detectable presence could be unacceptable to consumers and international markets, even in the small amounts found in recent testing, ministry deputy director, general standards, Carol Barnao said.
''Food regulators around the world are reflecting market demands with increasingly rigorous testing and, in some countries, there is zero tolerance to detected residues outside agreed standards,'' she said.
The ministry had supported DCD's development to address environmental issues. Its application directly on to farm land was ''one of the more promising ways'' of reducing nitrate leaching to waterways and greenhouse gas emissions from farming, particularly dairying, as well as promoting pasture growth, she said.
The ministry would work with other organisations to investigate what the suspension meant in terms of the future use of DCD in farming.
Federated Farmers food safety spokesman Dr William Rolleston said the issue needed to be kept in perspective, as DCD-based nitrification inhibitors had been applied on about 500 dairy farms, out of about 12,000. However, a detectable level presented a trade risk, no matter how small. Extensive testing had found no traces of DCD in processed dairy products like cheese or butter.
''There will be a financial cost but that is secondary to maintaining our reputation, given the bulk majority of farms have not used DCD-based nitrification inhibitors,'' Dr Rolleston said.
The inhibitors arose out of the considerable pressure to seek solutions to diffuse nitrogen, he said.
Otago Regional Council chairman Stephen Woodhead said the council was disappointed DCD had to be withdrawn as it was one of the tools available to manage nitrate leaching.
He supported the companies' voluntary withdrawals of the products, saying the integrity of New Zealand's farming systems and the safe, healthy food the country produced was ''vitally important''. From the council's water plan perspective, the 6A panel was still working through its decision and Cr Woodhead said he would suggest no change as a result of the DCD decision.
Ravensdown chief executive Greg Campbell said it was reassuring both the ministry and the company's own peer-reviewed research showed there were no food safety issues with DCD, or Ravensdown's s eco-n product which contained DCD.
Last year, organisations like the US Food and Drug Administration added DCD to a list of substances to test for. That, combined with increasingly sophisticated scanning technology, now presented a possible trade risk.
While the news was disappointing for the 500 customers who used eco-n, the potential risk demanded ''decisive and pre-emptive action''.
Sales of eco-n made up about 1% of Ravensdown's annual revenues, he said.
Ballance Agri-Nutrients research and development manager Warwick Catto said Ballance had not sold its nitrification inhibitor product DCn since July last year and had not promoted its use on pastures since late 2010. Ballance ceased sales of DCn in early spring to review the product and its applications.
DairyNZ chief executive Tim Mackle urged Ravensdown, Ballance, government authorities and dairy companies to work on pragmatic solutions that would enable the product to be back on the market.
''We support this proactive approach to managing the trade risk but this is a very useful tool for farmers in terms of managing their nutrient loss on farm, so we'd like to see solutions worked on as a priority,'' he said.
The Green Party said nitrification inhibitors were ''never the magic bullet'' to reduce nitrate leaching. Fish and Game chief executive Bryce Johnson said regional councils must not lower ''pollution'' targets in the absence of the products. Instead, the onus should be put on farmers to adhere to environmental guidelines and reduce the impact by other means, he said.