Fonterra is closing a factory in Dennington, western Victoria, with 90 workers affected.
The plant will close in November after more than a century of manufacturing at the site.
In a letter to the workers Fonterra said it has been a difficult decision, but it must ensure its manufacturing facilities were fully utilised.
The company said it wouild work with those affected by the closure.
Local MP Roma Britnell said it was a "tough day" for the workers and their families, and the for Dennington "where the factory has been the beating heart of the community for decades".
My statement regarding the closure of Fonterra’s Dennington factory. pic.twitter.com/twkbnzYUdA— Roma Britnell MP (@RomaBritnell) May 22, 2019
"The dairy industry is going through major challenges but this announcement has come as a shock", she tweeted.
Ms Britnell said she had urged Fonterra to ensure those leaving the workforce would get help to find new employment , and that she would speak to government ministers about support for people leaving their jobs.
In its letter Fonterra said the company was feeling the effects of industry structural changes and a reduction in milk volumes, meaning the factory was under-utilised.