Farmland is not being gobbled up by forestry, and tree planting is moving the pendulum back after years of deforestation, Forestry Minister Shane Jones says.
The lobby group 50 Shades of Green has said too many farms are being sold for forestry, destroying the economic viability of local communities.
The group said farmers earned money throughout the year, and so bought good and services from local businesses year round, while forests would earn a significant cheque only when felled after 25 years, leaving local businesses to languish in the meantime.
This view is shared by some local mayors who have met government ministers to protest at a gloomy future for many regions.
As a result, departmental officials were asked to look at the policy again.
Mr Jones said farmland was not being gobbled up by forestry.
In reality, the pendulum was swinging back towards afforestation after years of deforestation, he said, citing two examples.
"Ngāi Tahu got back the forests near Balclutha, got rid of the forests and put it into dairy, without a single tree growing.
"Graeme Hart bought Carters, severed off some of the land, sold it to Wairakei Pastoral, they did a deal with Landcorp, and all of that land went out of trees and into farming.
"I can guarantee to you that water quality was not enhanced when those trees were cut down, and we are endeavouring to reverse that."
Mr Jones said government policy would increase forestry cover from 1.7m hectares to 2m hectares. By contrast, farming covered 12.6m hectares.
He said the majority of foreign investment was for existing forests, not conversions. Nor were these foreign buyers getting help from the taxpayer.
In another development, Agriculture Minister Damien O'Connor suggested there might be ways of compensating farmers for tree-planting that did not qualify for help under the emissions trading scheme at present.
These included rows of trees alongside rivers to combat leaching, lines of trees planted as a wind break, or trees planted to give shade to livestock on hot summer days.
Farmers have long argued that these trees qualified by any definition under the government's policy of "the right tree in the right place", and deserved climate change payments far more than pine plantations that swallowed good land.
Ministerial officials said doing this would not be easy, but Mr O'Connor said it should be tried, and Mr Jones agreed.