Two of the country's biggest chicken brands are being called out for putting, what SAFE says is, misleading labels on their packaging.
Tegel and Ingham market their products as cage-free, yet no chickens bred for meat in New Zealand are kept in cages.
A spokeswoman for the animal rights' group SAFE, Marianne Macdonald, told Nine to Noon the labels gave the wrong idea.
Ms Macdonald said in reality the sector was operating to the minimum possible standard and the birds were kept in large sheds with not a lot of room to move.
"They are implying that there is an ethical advantage to buying their products, whereas... there are up to 40,000 birds in one shed and they are selective bred to grow explosively fast and their bodies just can't keep up and that cases huge welfare problems, huge levels of lameness, deaths from heart failure," Ms Macdonald said.
"These birds are in terrible conditions and they are misleading."
However, the chicken meat industry says the labels are accurate and have been put there in response to consumer confusion over farming methods.
Ms Macdonald also took exception with the free-range label for chickens.
She said they were the same fast-growth chickens used in the free-range systems and many would not even see the outdoors during their lives.
She said the chickens were susceptible to disease because they lived in their own excrement, so the food used was laced with antibiotics.
Michael Brooks, the executive director of the Poultry Industry Association and of the Egg Producers Federation, said there were codes of welfare developed under the Animal Welfare Act by independent experts in the Animal National Welfare Committee in New Zealand.
Mr Brooks said these were consistent with standards applied in other jurisdictions, including the EU, and were considered best practice across the world.
He said the maximum stocking rates for chickens in factories was 38kg of birds or 16 birds per square metre and operating practices in New Zealand was below that.
Claims the birds could not walk were false, he said, as they were able to walk to get their feed and water.
"Our mortality rate in New Zealand for meat chickens is 1.8 per cent, it's world's best practice in terms of that."