Restrictions on the amount of raw or unpasteurised milk that can be sold direct from farms to the public will be lifted from next year.
But there will still be strict hygiene requirements.
It followed a government review of the raw milk regulations, which currently allow only farms producing the milk to sell it direct to consumers, with a limit of five litres per person.
From March next year, raw milk can be sold to consumers either from the farm or through home deliveries, with no limit on the amount.
The Government said raw milk carried higher health risks and farmers supplying it would have to register with the Ministry for Primary Industries (MPI), and meet strict hygiene, testing and labelling requirements.
Federated Farmers said those farmers would need to see the fine print of the rules before deciding whether they thought the new policy would work.
The group's dairy chair Andrew Hoggard said there was obviously a growing demand for raw milk.
"We've got members who have set up some pretty impressive little businesses, providing raw milk to local communities, and they've done a great job in ensuring hygiene.
"We don't want to see raw milk sales wiped out because that would drive it into a black market situation where there would be even greater health risks."
He said he grew up drinking raw milk.
"The difference with us on the farm is that we had a little milk billy and we would use that up in a day," he said.
"People from town if they're filling up a two to four litre bottle and leaving it in their fridge for several days, that's where the risks occur.
"Personally, I prefer the taste of the raw milk. It's certainly a lot more fuller and creamier than the store-bought stuff, but that's my preference because I've grown up with it."
Debate over risk levels
The Government considers raw milk was a high risk food particularly for children, the elderly, pregnant women and those with compromised immune systems.
The Manawatu Raw Milk Consumers Network represents about 20 families in the region who drink unpasteurised milk.
Its spokesperson, Forrest Chambers, said the risks - such as contracting campylobacter - have been overstated.
He said his family had been consuming raw milk for about 10 years with no health problems.
"We know a few local farmers who supply raw milk and, when our cow is dried off, we source it from them.
"We have never had a health problem within our family from consuming raw milk and neither has anyone within our network of raw milk drinkers."