The Education Review Office (ERO) says schools must do more to stop racist bullying of children from ethnic communities.
A report the office published on Wednesday said one in five children from ethnic backgrounds reported racist bullying in the past month, and nearly a third said their school did not take the problem seriously.
More than half reported seeing people being mean to others because of their ethnicity or culture and one in five had read racist messages, the report, Education For All Our Children: Embracing Diverse Ethnicities, said.
Nearly one in five learners said they had to hide their ethnic identity at least once or twice a month, and a third felt lonely at school every week or day.
"Too many learners from ethnic communities experience racist bullying and racial biases," the report said.
"And when they raise concerns they are not always acted on. We must do better. Every school needs to be able to prevent and tackle racism."
The report said the education system could set firmer expectations for tackling racism, set up a system for monitoring it, and give students stronger avenues to complain when it was not dealt with.
It could also consider teaching more languages in schools, changing the way religions were taught, and helping ethnic communities set up their own schools or special units within schools.
The report included comments from students.
"I see so many teachers and staff at my school be racist and don't care about you because you're a different race - I hate when it happens, and it irritates me a lot. I feel like shouting and screaming every time something like that happens," said a pupil.
"I still feel kind of weird taking Indian food to school as you have to eat it with your hands. One of my friends - she is Indian too - got bullied so badly for her food that she became a loner. And she tried to bring sandwiches to school even though she didn't like them, but it was too late," said another.
One student said he did not report schoolmates for saying "mean things" because he did not want to get them in trouble.
Another described girls from different ethnic communities sitting together at break times and "Kiwi" girls opting not to join them.
The report said about 16 percent of school pupils were from ethnic communities, most of them born in New Zealand, and within 20 years they would account for nearly 30 percent - most of them from Asian communities.
In Auckland, 43 percent of school children would come from Asian backgrounds by 2043.
The report said 80 percent students from ethnic communities believed their teachers treated them fairly, but more than one in four said their ethnicity influenced the courses teachers recommended for them.
"Stereotyping of what particular ethnic groups should aspire to is very limiting and doesn't enable students to reach their aspirations," a community youth leader told ERO.
The report said learners from ethnic communities, especially Asian children, achieved well at school, but some groups had bigger gender gaps and often wanted higher expectations from their teachers.
"Education is not currently always reflecting what whānau from ethnic communities want. Four in 10 whānau from ethnic communities, and nearly a third of learners, do not feel schoolwork is challenging enough," the report said.
It said almost two-thirds of families wanted their school to support their mother tongue.
The report said students from MELAA backgrounds (Middle Eastern, Latin American, African) reported much lower wellbeing than other students.
It said every school needed to be able to respond to increased diversity and tackle racism.
ERO deputy chief executive Ruth Shinoda told Morning Report the communities needed a stronger voice, and teachers had to be enabled and supported to connect with the communities.
"On some school boards only 2 percent of parents are Asian but 14 percent of our learners are, and in our teaching workforce only a very small percent are from these ethnic communities.
The report was informed by survey results from 1250 families, 558 students, and 263 teachers.