DROUGHT and significant change in the dairy industry has been blamed for the imminent closure of Dennington's Fonterra factory.
Fonterra Australia's managing director Rene Dedoncker said the decision to close the site was a responsible decision for the long-term.
"We know this is very tough for our people, and we will do the right thing by them," Mr Dedoncker said.
He said the reduction in the Australian milk pool, coupled with excess processing capacity across the industry had resulted in heightened competition for milk and the underutilisation of manufacturing assets.
"In this current operating environment, it's more important than ever that we put our farmers' milk into the highest returning products to ensure we can run a sustainable business that is here for the long-term," Mr Dedoncker said.
"The Dennington factory is under-utilised and the unfortunate reality is, the site is not viable in a low-milk pool environment and we need to remove capacity."
Mr Dedoncker said while it was terribly difficult news to share, it was the responsible decision that consolidated the company's manufacturing in western Victoria.
"Following the closure of Dennington, milk currently processed at Dennington will be relocated to our Cobden manufacturing plant," he said.
The decision to close the factory comes amid a review of its business following significant changes, including a declining milk pool.
The Dennington factory was acquired by Fonterra in 2005.
In a letter to suppliers, Fonterra said a "lower milk environment" meant Dennington was underutilised
"It's currently producing lower-value products that are not core to our Australian strategy," the letter said.
"Closing the site removes capacity from our business, and reduces complexity by consolidating our manufacturing in western Victoria, making our three regiona Victorian milk processing sites more efficient.
"Coupled with our two Tasmanian factories and secondary processing plant at Bayswater, this gives us the right asset footprint."
The letter said closing the plant would allow Fonterra to double down on its core businesses, in consumer, foodservide and value add ingredients, and redirect milk into these dairy foods, so that it could continue to pay a competitive milk price.
"For farmers in the west, your milk will continue to be collected as it alweays has."
The closure will affect 98 Dennington employees.
Bonlac Supply Company chairman John Dalton, Naringal, said he didn't believe Fonterra's decision would have an impact on regional dairy farmers.
"While it's very difficult and hard for the workers at Dennington and the community its extremely difficult, in reality the milk will still go out the gate, in a tanker," Mr Dalton said.
"I would say what Fonterra have done is address their business and are working their strategy to make sure it stays strong and they can continue to support their farmers."
He said milk collection was down all over Australia.
"Every factory has had a downturn in milk supply, and Fonterra is not immune to that."
He said farmers expected an opening price in the middle of June.
"In the competitive environment we are in, it's going to have to be quite strong," Mr Dalton said.
"I am not concerned for dairying in the west, while it's unfortunate for an old factory like Dennington, it's still a great place to dairy."
In its latest Global Dairy Update Fonterra said its March collections were eight million kilograms/Milk Solids, down 27pc on the same period last season.
"Fonterra's share of monthly collections continues to reduce due to adverse on-farm and weather conditions, increased cow cull rates, farm exits in key regions, cost of inputs and milk collection losses in a highly competitive market," the report said.
The March figures followed a decrease in Australian milk production of 13pc in February compared to the same period last year.
Production for the 12 months to February was down four pc on the previous 12 months.