Activist group Farmer Power says the closure of Fonterra's Dennington factory will have massive flow-on effects for the region.
Chief executive officer Garry Kerr said the south-west economy would take a hit with small businesses and community groups to suffer.
"This is what happens when we don't pay farmers enough for milk," he said.
"It all comes down to the way the industry is run. It's extremely disappointing and no-one seems to understand the threat to our food security.
"The processors need to have a long hard look at themselves. Logic tells you they need food to survive."
Mr Kerr said "the flow on effect to our towns and regional area is massive".
"It affects 100 people immediately and then there is the flow on to small businesses," he said.
"Then there is the sponsorship of local clubs and community groups.
"The first thing we have to do is raise the awareness of the plight of our dairy farmers.
"We need to put pressure on our political leaders. We can't skirt this issue anymore. There has to be a real commitment to our dairy farmers if we want to save the industry."
Mr Kerr said the cost of producing milk was more than what farmers were getting paid.
"Farmers have increased fees, electricity, council costs and milk is selling at $1.10 a litre," he said.
"You tell me one other product that is going so cheap.
"Now we are a net importer of dairy products in this country which I never thought we would see."
He said the government was giving the ongoing dairy crisis "lip service".
"The Liberal-National party is going to see the death of the dairy industry," he said.
"There has been calls for a milk levy but Scott Morrison won't do it.
"We can't fix it unless we have an increase in milk price.
"The processors are able to pass it onto the supermarkets if there are any increase in cost.
"We are not seeing it at the farm gate.
"If we want to do something immediate we need to place a levy on processors, not the public. Then they would be forced to pass it on to the supermarkets."
He said when there was a shortage of other food products prices went up, but it didn't happen with milk.
"Why isn't this happening?" he asked.
"Price goes up for any product when there is a shortage, but not in the dairy industry. It's up to the government to take this challenge on and deal with it.
"The farmers need some hope.
"We have dropped a billion litres."
He said the introduction of a mandatory dairy code was "very important".
"Dairy farmers have to be counted," he said.
Mr Kerr said some farmers had suggested there was a need for a royal commission into the dairy industry.
"Unfortunately that will take too long," he said.
"Something needs to be done before Christmas, but it's probably too late now to be honest."
Mr Kerr said people could find more information on Farmer Power's Facebook page.
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