The versatile Farrell - often deployed at centre by England coach Eddie Jones - forms part of a trio of 10s in Gatland's selection, with Jonathan Sexton and Dan Biggar also included.
Asked by Sky Sports whether the fight for a Test start would be a head-to-head between Farrell and Sexton, Gatland said: "Don't discount Dan Biggar, because he's one the most competitive people you'll meet.
"Those 10s are really going to fight hard for their position and we just felt that, at the moment, we know Owen can play 12 and that gives us that flexibility.
"Maybe at the stage when we come to the Test matches and we're putting our best players on the park, it could be one of the 10s and Owen at 12 if we feel that's the right combination.
"We know he can do a job, we just feel in New Zealand, particularly with a lot of New Zealand players coming down that 10 channel, he's a strong defender, particularly at 10, and his goal kicking's been excellent.
"Talking to [assistant] Neil Jenkins, that's potentially a point of difference. We've got four or five world-class goal kickers, guys that can make a difference.
"Someone like Beauden Barrett is an outstanding player, but he's not goal kicking at the moment.
"That potentially could be a point of difference between us and the All Blacks."
Gatland is blessed with kicking talent across the backs, with Elliot Daly, Leigh Halfpenny and Stuart Hogg among the others who could cause damage from the tee.
Discussing Daly, Gatland added: "We know he can play 13, we know he can play on the wing, we know he's a good full-back as well.
"He's got a big left boot, so there's going to be some competition there."
Among those to miss out was Finn Russell, as only two Scottish players - Hogg and Tommy Seymour - made the cut, despite a strong showing during the Six Nations.
"We didn't take into account the countries they came from," explained Gatland. "We just went through every position. We highlighted who we thought the players in contention were and picked what we thought the best squad was.
"It's not about the national teams. It's about putting the best players together into a squad to do the best job. It's not about a quota system."