Fonterra Ingredients Australia Simon Bromell said it was a tough decision to shut down the Cororooke factory, but the more than 100-year-old site was in need of major upgrades.

"We have explored all alternative options to keep the site open but they were not commercially viable," Mr Bromell said.

"This has been a tough decision and not one we have reached lightly."

He said the company had decided instead to invest $20 million in upgrades of its Cobden and Dennington dairy factories.

Production at the Cororooke site, which maufactures soft cheeses and cream products, will be closed down in a phased process over the next year.

"Where possible, Fonterra is very keen to help those employees who wish to relocate to other sites to identify suitable roles," Mr Bromell said.

"However, it is unlikely that we will be able to relocate all employees and there may be a number of redundancies." 

Mr Bromell said part of Fonterra's investment program at Cobden included the purchase of a disused National Foods dairy factory next to Fonterra's Cobden factory to support future expansion.

He said there would be no impact on Fonterra's farmers in the region.

All milk would be collected as normal and in the future would be delivered to Fonterra's Cobden and Dennington sites.

Over the past three years Fonterra has invested more than $100 million in its Victorian manufacturing sites.