He said she would be working in a "different capacity" in her board position.
The Food and Grocery Council's website claimed it was a "powerful lobby group" which had a close relationship with Government departments.
It has campaigned against the mandatory inclusion of folic acid in bread and some anti-obesity proposals such as an excise tax on sugar.
Asked whether health qualifications should be the main criteria for members of the board, Mr Key said:
"They may be, but each one of those individual components have a degree of debate that you can have about it.
"The debate wasn't around whether folic acid might or might not work. It was about people's rights to have that put in every piece of bread. There's quite a difference there."
The council has been one of the strongest voices of opposition to "traffic-light" food labelling scheme, which would highlight "danger" foods high in sugars and fats with a colour-coded system.
The Health Promotion Agency combined the Alcohol Advisory Council of New Zealand (ALAC), the Health Sponsorship Council and some of the Ministry of Health's promotion work.
The agency will produce promotion programmes on healthy living and disease and injury prevention.
The agency board also included academics, healthcare workers, and businesspeople.
