Palm kernel extract (PKE) imports halved last year in the South Island, falling from 669,923 tonnes to 320,637 tonnes.
The figures, collated by the New Zealand Feed Manufacturers Association, also show national imports dropped by about a quarter, from 2,219,282 tonnes in 2015 to 1,526,966 last year.
PKE imports into New Zealand reached a high in 2015, having increased since 2012.
Federated Farmers Southland president Allan Baird said with the low payouts in the 2014-15 and 2015-16 season, farmers shifted to growing more grass and reduced supplements.
''There has been a shift away from system five (farming).''
There had been a reduction in not only PKE but also other supplements put into the milking shed, he said.
Other measures, such as lowering stocking rates and trying to grow more grass, had also been undertaken by farmers, Mr Baird said.
PKE filled a gap in farming systems and was one of the easier supplements to introduce, he said.
''It has great flexibility.''
There had been more use of PKE this year on the back of the previous season, as farmers wanted to milk that bit longer and extended milking until the end of May, Mr Baird said.
''There's confidence with the forecast payout ... There's confidence to use more supplements.''
The PKE supplement fed to dairy cows is a byproduct of the palm oil industry.
There had been concern about the deforestation caused by palm oil production, and the demand for palm oil had eased off recently, Mr Baird said.
''In my personal opinion I don't think there is a lot wrong in using that byproduct. I'm not sure what else they've got to use it for if they don't use it as a feed source.''
PKE was a cheap feed supplement, but the price fluctuated and usually depended on demand in the Waikato.
It could cost anywhere between $200-$250 a tonne, which was $100 less a tonne than some other supplements, he said.
He expected the use of PKE to increase again this year but not to anywhere near the levels of 2015.
Winton Stock Feed operations manager Paul Jackson said the decrease in PKE imports was probably because of the state of the industry last year.
''I'd expect you'll find all farm expenses reduced over that period, including the use of local grain-based products.''