The Government is keeping an eye on state-owned farm manager Landcorp's plans for large scale dairy conversions, the Prime Minister says.
Under a plan that has been running for a decade, the state-owned enterprise is converting about 26,000 hectares of forestry land to dairy.
John Key said his ministers had told Landcorp to keep an eye on its books and avoid running into the sort of debt problems that led to Solid Energy's demise.
But no orders had been given to pull back on dairy expansion.
"This is a very long-term project, they've been converting for quite some time as I understand it. Our assessment would be the long term prospects of dairy is still very, very strong and compelling," he said.
Mr Key said global demand for dairy was growing and he believed long-term dairy would going to be a "winner for New Zealand."
Mr Key also said he expected Fonterra to survive a difficult patch without the Government needing to consider any kind of bail-out.
The cooperative dropped its forecast payout this month and is now reducing the amount of product it puts up for sale at the fortnightly Global Dairy Trade auction, which is being held again this Wednesday.
Mr Key said Fonterra was going through a tough time, but he was confident the company could manage its way through that in the medium to long term.
He said Fonterra's balance sheet was still strong.