Rene Dedoncker, Fonterra Australia's managing director, 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 consolidates 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.

The closure will affect 98 Dennington employees.

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