Kraft Foods Australia says it is pleased that an American festival show featuring a red kangaroo that is goaded into fighting a human clown has cancelled the exhibition.

The American arm of Kraft - the owners of Vegemite - was sponsoring the show in the Texas town of Hidalgo, which claimed to be a celebration of all things Australian.

Following widespread publicity, Kraft released a statement today saying it was pleased the event had been cancelled.

"We understand the BorderFest Association, which organises this annual cultural celebration, has apologised for offending anyone, particularly the people of Australia, with the kangaroo boxing display," said Kraft spokesman Simon Talbot.

"That portion of the event has been cancelled.

"Kraft Foods is pleased they've taken this proactive stance."

News Limited newspapers reported that the festival features an event called Rocky Show Circus, involving two kangaroos and their owner, Javier Martinez, who dons a clown suit.

Mr Martinez reportedly baits the kangaroo by pushing it and poking it before placing it in a headlock.

If the kangaroos fight back too much, Mr Martinez's wife Sandra restrains it using a heavy tether attached to a harness around the animal's chest.

Mr Martinez has defended the show, saying the kangaroos are in control at all times.

"You cannot force a kangaroo to do nothing," he said.

"[Kangaroos] only do what they want to do so we don't make them work, you work around them."

But News Limited said Mr Martinez is known to US animal welfare authorities, having been on their watch list since 2003, when two kangaroos he was caring for died within four months.

He's also been investigated by PETA, which says one of the kangaroos died from a bacterial disease called lumpy jaw.

- AAP