An RNZ investigation has revealed that the dairy giant is using 16 empty farms to dispose of factory wastewater, and nitrates have leached into nearby water supplies.
Fonterra has given some neighbours filters to make their water safe, including Neville and Denise Ross in Waikato, whose drinking water had nitrate levels exceeding New Zealand's standards, and people in Canterbury.
Fonterra global sustainability director Carolyn Mortland told RNZ's Morning Report today they were doing more than required by the rules in order to mitigate the impact of nitrates.
"We acknowledge that some houses such as the Ross's do have higher levels of nitrates in their drinking water. The Ross's nitrate levels recorded around the high level of acceptable for drinking water, and so for those farms we have put in water filtration systems to remove the nitrates.
"The Ross's drinking water is now down to negligible levels - about one (milligram per litre) versus the 11 it was, so very safe to drink.
"There are some nutrients that come through our wastewater, there can be other causes as well and in the case of the Ross's we don't know where that's come from, but we recognise that they are in the area, we are a contributor."
Mortland said the water to clean the factories, containing milk and cleaning products, is treated at the factory before being put on to the land. It contains nutrients which help grow grass which is cut and used as cow feed, and is a "good natural process for cycling nutrients."
"One of the fixes we want to do is invest in a new wastewater treatment plant at the factory that will treat that wastewater to an even higher standard.
"That will have a significant impact on reducing our nitrate levels.
"We are doing things that we can above the rules. That's one of the reasons why we did change the farm from being a dairy farm to being just growing the grass and cutting it."
University of Otago public health expert Dr Tim Chambers said New Zealand should take a precautionary approach and reduce the maximum allowed level of nitrate in drinking water from 11.3 milligrams per litre to 1mg/L.
Mortland said New Zealand legislation followed the World Health Organisation standard and set to avoid blue baby syndrome.
"It's considered a reasonably conservative level for adult consumption, but nevertheless the science is evolving.
"There's no evidential link of brain cancer to exposure from nitrates in water and there's no conclusive evidence about nitrates and colorectal cancer, although we do know that as the science evolves then councils and companies need to evolve their operations
"We are working with neighbours even if they may not be what our experts say is within is the ground water area of influence of our farm. We're going broader than that with neighbours such as the Ross's and testing their bores and we pay to put in a water filtration system.
"We're working with the community as we speak to try and put in a new wastewater treatment plant to treat the water to even higher standards."
Greenpeace senior campaigner Steve Abel said the rules on disposing of waste water with caps on synthetic nitrogen fertiliser.
"One of the positive moves the government has made, is they've put a cap on the synthetic nitrogen allowed to be placed on farms at 190 kilograms per hectare per year.
However Fonterra had consents to place much more than that on the land through its waste water, he said.
"Placing of waste water on farms should be captured by the same fertiliser cap. They should treat that as if it is a fertiliser."
Abel said the issue was very much related to synthetic nitrogen fertiliser, which is a pathway to nitrate in water.
"Our addition of that synthetic fertiliser though the process of leaching ends up in our groundwater, ends up in our streams and rivers.
"It's a very pernicious chemical substance that's used to drive the intensification of dairy artificially."
He said the real solution was for New Zealand to get rid of synthetic nitrogen fertiliser altogether.
"We don't need it ... even Dairy NZ have proved we can farm profitably without the use of this pernicious chemical.
"We need to move to lower stocking rates, less dependence on these inputs, you'll actually increase the farmgate profits and you'll improve the quality of our farming across the board."
