Greenpeace says the New Zealand government should step in and stop this country's dairy industry from using or PKE as a supplementary feed.
The environmental group says New Zealand dairy farmers constitute the biggest export market for PKE from Indonesia, but that this continued use of the palm oil by-product is one of the ways that intensive dairying is fuelling the climate crisis.
But Federated Farmers has dismissed the Greenpeace claims, saying PKE is needed.
Greenpeace said a million hectares of rainforest in West Papua had been lost in the past 20 years, with the stripped land typically replanted in oil palms.
The environmental group said more clearance would release huge amounts of additional carbon into the atmosphere.
Greenpeace's Amanda Larsson said dairy was already New Zealand's biggest climate polluter and that by importing PKE it was also contributing to the destruction of peatland and rainforests in Indonesia.
"There is real concern in terms of the climate impact of the palm industry and PKE in Indonesia but also in New Zealand because here PKE has a double whammy. This industry is driving dairy intensification and putting more dairy cows on the land than the land can sustain, and is causing huge amounts of methane and nitrous emissions," she said.
But the president of Federated Farmers in New Zealand rejected this.
Andrew Hoggard said PKE is not the culprit and he points to the dozens of supermarket products that contain palm oil.
He said PKE is a tiny fracton of the earnings made by palm oil companies after they clear the forest and plant the palms, "prior to farmers using it it was either piled up or burnt - the other big user of it is bio-energy in Europe".
"So I definitely think there is a concern around unsustainable practices but I wouldn't pin this whole thing on the New Zealand dairy industry which is what Greenpeace seems to be wanting to do, " Hoggard said.
Larsson said the farmers shouldn't be importing a product that's helping to destroy rainforests, and the government should step in.
"So what we are calling for here at Greenpeace is for the government to phase out this imported feed and to support farmers to shift to regenerative practices which maintain livestock at a level that the land can actually handle, and work in harmony with nature in order to improve soil resilience and droughts and floods and other things that mean farmers are having to import PKE at the moment."
However Hoggard said Greenpeace was great at throwing out slogans but lacked a solid understanding of the complex biological farming systems used in New Zealand.
He said "first of all they need to define what they mean by regenerative farming because overseas it seems to be defined as rotational grazing of livestock on land to protect the soil, which is kind of what New Zealand farmers have been doing for 100 years".
"In terms of organics there is no solid science that you are somehow going to be better off if you are organic," Hoggard said.
A lecturer in pasture science at Lincoln University, Tom Maxwell, said PKE did play a vital role in helping farmers through events like drought, "supplementing with something like PKE can improve milk production in those summer months and allow farmers to carry on milking at a level that is economic for them and their farm system, particularly in areas that have suffered drought in recent times like Northland and the Waikato."
Maxwell said whether PKE production was destructive of the rainforest environment in Indonesia and Malaysia had to be put in context. He said the critical issue was its provenance.
"Where the palm kernel expeller came from. What sort of system in Malaysia or Indonesia did it come from.Was it government certified or a round table of palm oil production - a sustainability network and group that has come together to qualify and put a marker on whether a system is sustainable or not, or can prove they haven't been involved in wanton deforestation of pristine rainforest," he said.
Tom Maxwell said PKE could be a life saver and if one was critical of its ecological foot print in this country that conversation would also have to include a lot of other key farming products - fertilizer and seeds, for instance.