The "abhorrent" practice of clubbing unwanted calves is causing live ones to arrive at processing plants when they should be dead, says Meatworkers Union organiser Eric Mischefski.
"We believe it is a relatively common practice in the dairy industry and we have had reports that some of them are delivered alive," he said.
"They have clearly been hit over the head because you can see the wound."
"You can't tell where the calves have come from because they have all been chucked together in a bin. It's hard to tell - sometimes they are worked on when they are still alive."
Chilean authorities have launched an investigation after a New Zealander was filmed clubbing calves on the head to kill them. New Zealand-owned farming syndicate Manuka milks 25,000 cows in Chile.
"He must have learned to do that somewhere and it was probably in New Zealand," Mr Mischefski said.
One report of live calves was received at the union's National Conference and the other was reported directly to him by a former employee at Wallace Corporation's Feilding depot for dead animals. In the spring contractors and fundraising community groups, such as schools, collect the calves from farms and deliver them for hide processing and rendering into meals and tallow fats.
Wallace acting CEO Aiden Tapping said he had enquired at the Feilding depot and was told no live calves had arrived.
The company had been in business for 70 years, he said.
"We have this reputation as the dead-stock collectors. Sometimes we get a few macabre rumours and there are a few rural legends that go on. That's all I can put it down to, because that's not the kind of business we are in.
"We are serious operators and if there are a few cowboys out there potentially, we want to make sure the industry is seen as above board."
He said the expectation was that any live calves be reported to the Ministry for Primary Industries (MPI).
MPI deputy director-general of standards, Scott Gallacher, said animal welfare was a ministry priority.
He said: "Where non-compliance is brought to the attention of MPI, we take this very seriously and will investigate and take action as appropriate. We would encourage anyone who is aware of suspected non-compliance to bring it to our attention immediately so we can make enquiries."
Under the Animal Welfare Act 1999 it is an offence to kill an animal "in such a manner that the animal suffers unreasonable or unnecessary pain or distress".
"The use of a captive bolt for stunning represents best practice, and over the last few years this method has been actively promoted to dairy farmers."
Federated Farmers dairy spokesman Willy Leferink said more than half of all dairy farms used a rifle to kill unwanted calves and many used a captive bolt, but the exact number could not be calculated. "People are not doing it in public, so it is very hard to get a handle on it."