Wellington - Rising oil prices will help New Zealand, the world's biggest exporter of milk products, continue to benefit from high international commodity dairy prices, according to a government report on Tuesday.

Oil prices show no sign of declining, so demand from members of the Organization of Petroleum Exporting Countries (OPEC), who take 21 per cent of New Zealand's total dairy exports, should remain strong, the Ministry of Agriculture and Forestry (MAF) said.

It predicted that international dairy prices would fall back from the peaks of early this year, but said strong demand was expected to ensure they remained significantly above the levels before 2006, when the price boom began.

The dairy industry is critical to the New Zealand economy, accounting for 27 per cent of all export earnings in the last fiscal year, according to the giant farmer co-operative Fonterra, which is the world's fifth largest dairy company.

The value of dairy exports rose 25 per cent to 10 billion New Zealand dollars (7.3 billion US dollars) in the year ending March 31, despite a drop in production because of drought, MAF said.

It forecast that dairy exports would peak next year at 12 billion New Zealand dollars - more than 40 per cent higher than earnings two years ago.

While milk powder for reconstituted liquid milk dominates production, MAF noted growing demand for higher-value consumer products, such as cheese and yogurt.

It said international prices had remained high in the last two years because European Union exports of skim milk powder fell due to changes in the Common Agriculture Policy in 2003 and drought in Australia, another major producer.

But MAF predicted that the supply would increase, noting that the EU's 2 per cent rise in milk quotas for the year ending next March 31 was equivalent to 19 per cent of New Zealand's forecast production in the same period.

The report noted that dairy production was also expanding in the United States, China, India and some South American countries. (dpa)