New Zealand dairy giant Fonterra is to cut 700 jobs over the next two years in a bid to reduce costs.

Chief executive Andrew Ferrier said jobs would be lost at the cooperative's head office and the units that make consumer and commodity-grade dairy products, reported Bloomberg.

Ferrier said the job cuts were necessary to unsure Fonterra remains a low-cost producer of dairy ingredients, such as milk powder and cheese.

"I am not talking about a 'quick fix' on costs for next season," Ferrier was quoted by Bloomberg as saying. "We need to continuously work at getting Fonterra's cost structure right."