Government efforts to reassure Sri Lanka about the safety of Fonterra's milk appear to have failed with authorities there demanding 40 tonnes of product be withdrawn from the marketplace.
Sri Lanka has ordered Fonterra to recall two batches of milk powder, saying testing showed they contained residues of dicyandiamide, or DCD.
The chemical was used by some farmers to reduce nitrogen leaching but was withdrawn from use in agriculture in January after it was detected in New Zealand milk last year.
The forced recall comes just two months after Foreign Affairs Minister Murray McCully met Sri Lankan Government officials to discuss the dairy trade between the two countries following Sri Lanka's introduction of mandatory testing of New Zealand milk imports.
Minister for Primary Industries Nathan Guy said Fonterra is not pleased with the testing methods Sri Lanka is using and the New Zealand Government is trying to find out more.
Sri Lankan officials have also alleged New Zealand's milk is radioactive.
Meanwhile the Labour Party is a calling for a truly independent inquiry into the contamination of Fonterra's milk with bacteria that can cause botulism.
Primary industries spokesperson Damien O'Connor said it would be naive to think Fonterra or MPI could conduct an independent inquiry when both have been implicated in wrongdoing over the way the food scare has been handled.
He said it is essential the inquiry is carried out by someone with absolute respect and suggests a retired judge or someone with full knowledge of the industry and the wider implications.
"They must look into this and have the ability to call anyone and everyone to the inquiry so that we can give our customers and other countries the absolute assurance that New Zealand produces and sells the highest quality safe food in the world," he said.