Egg producers say getting rid of cages and switching to larger enclosures will cost the industry more than $150 million.
The National Animal Welfare Advisory Committee has released a draft animal welfare code for layer hens, recommending that the cages used by most egg producers be phased out.
Nearly 90% of the country's eggs are produced by hens in cages, while the rest come from barn and free-range systems.
NAWAC has not suggested a deadline for phasing out cages, but says layer hens must have enough space to stand up and behave naturally, whereever they are housed.
The committee recommends that cage producers convert to enriched colony systems.
Egg Producers Federation chair Michael Guthrie says those are significantly larger than a conventional cage and allow hens to move about, perch and scratch.
He says they have been trialled in New Zealand for several years with 60 birds in each enclosure.
Mr Guthrie says the industry wants a 20-year phase in period for the new enclosures.
However the Green Party says the enriched colony systems are still cages at the end of day and should also be banned.
Animal welfare spokesperson Sue Kedgley says the enclosures have been condemned internationally on the grounds of animal cruelty.
Submissions on the draft animal welfare code for layer hens close on 25 March.
