Milk has been flowing out of the south-west area to new dairy factories in the north of the state where milk supply is in decline, Dairy Australia says.
This, along with more competition from other companies in the region, had put pressure on older plants such as Fonterra's ageing Dennington plant which will close in November, it says.
Illowa dairy farmer and lifelong Fonterra supplier Norm McCosker said he couldn't understand why Fonterra built the Stanhope factory, which last year underwent a $125 million upgrade to double the size of its cheese plant.
"They've made a lot of mistakes," Mr McCosker said. "Why would you build a cheese factory in Stanhope where there is no milk?
"I just cant understand how you would have the factory in a desert and try and get milk."
Fonterra said this week that lower milk volumes meant its Stanhope plant was currently only running one cheese line.
The decision to close the Dennington plant was blamed on industry changes and a declining milk pool.
In February, it was reported that Fonterra's milk supply had dropped by more than a quarter compared to the previous year.
A Dairy Australia spokesman said that although western Victoria had experienced relatively stable milk flows, northern Victoria has seen milk production drop from 3.3 billion litres in 2001/02 to 2 billion litres in 2017/18, and possibly 1.5 billion in 2018/19.
Milk production in western Victoria peaked at 2.2 billion in 2001/02, and had remained largely steady since but in 2017/18 production was 6.5 per cent lower. A further four per cent drop is anticipated in 2018/19, with a slow recovery predicted.
According to Dairy Australia there were about 1200 dairy farmers in the south-west and while there had been an increase in the number of people getting off the farm during the current season, they couldn't put a figure on it.
"Northern Victoria has a number of under-utilised, modern milk processing facilities and increasingly milk is being transported out of southern Victoria to these plants, further increasing the competition for older local plants such as Dennington," the spokesperson said.
During the past five years there has been numerous factory commissionings and upgrades across western Victoria and South Australia from competitors that have actively pursued milk supply in the region, the spokesperson said.
We are certainly seeing a number of closures in northern Victoria and that's reflected in the recent milk productions numbers that you see which has seen a significant drop off.Dairy Australia
Bega Cheese chief executive officer Paul van Haarwaarden said the company was establishing its milk supply base in the south-west which had increased this year by about 20 to 30 per cent with plans for similar growth next year.
He said the company was starting to build up its milk supply, following the collapse of Murray Goulburn, and was investing in a $34 million expansion of the Koroit factory with a lactoferrin extraction plant is set to come online in March.
Mr van Haarwaarden said he had heard there may be some dairy farmers getting off the land in the south-west, but that it was more common in northern Victoria and southern New South Wales.
"There's a number of closures that are impacting us and others in northern Victoria in so much that, as the milk drops off in NSW and Queensland, the fresh milk players are picking up milk out of northern Victoria," he said.
"That's increasing the competitive dynamic in northern Victoria. We are certainly seeing a number of closures in northern Victoria and that's reflected in the recent milk productions numbers that you see which has seen a significant drop off.
"It is more significant in the north of Victoria.
"There's no doubt that conditions are tough across the state. They're tougher in different regions for different reasons.
"Broadly it's to do with the drought and the cost of feed."
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