New Zealand dairy giant Fonterra has justified adding permeate in its blue-topped milk, saying it is meant to standardise protein levels and not to cut costs to maintain a competitive price as recent news reports have hinted.

Fonterra explained how permeate works, saying it was extracted from the milk during the ultrafiltration process, and it is made of lactose and fluid.

Permeate is high in lactose and relatively low in protein. Fonterra adds permeate to the milk at production’s later stage, and it is used to create other products.

Australian newspapers have recently headlined that Fonterra was adding permeate to cut costs.

A Fonterra spokesman told the Dominion Post that permeate is added to the milk to make sure the company’s milk products are consistent in protein levels.

The protein in fresh milk varies with lactation and feed cycle of cows. Protein levels tend to be higher during autumn and winter and lower during spring and summer.

Fonterra follows the Food Standards Australia New Zealand code which specifies milk must contain at least 3 per cent protein.

The spokesman told Dominion Post more permeate is added to the milk products when protein levels were high and less when they were lower, the spokesman said.

"This is normal practice among fresh-milk manufacturers," the spokesman told Dominion Post.

The Sydney Morning Herald on Tuesday reported that a document from 2007-08 revealed a milk producer could save up to $22,960 by adding 16 per cent permeate to the production of 350,000 litres of whole milk.

Peter Nathan, the chief executive of Australian-based A2 Milk, told the Herald none of his milk contained permeate because it is a "lemony-green liquid substance; it's certainly not attractive."

Mr Nathan said the milk price battles in Australia were making producers think of ways reduce production cost per litre, and adding more permeate is one of such ways.