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Fonterra will close a rundown manufacturing plant at Cororooke in Victoria because it is not worth repairing.
The plant, which employs 130 people, is more than 100 years old and needs major upgrades to meet environmental and production standards, Fonterra Ingredients managing director Simon Bromell says.
"The barriers to modernising this particular plant mean the most responsible thing to do is close it."
The Cororooke plant makes soft cheeses and cream products.
Mr Bromell says redundancies are likely, but Fonterra will try to relocate employees.
However, the company has also announced it will invest $20 million over the next three years in site upgrades at its nearby Cobden and Dennington plants.
Farmers will not be affected, Mr Bromell says.
"All milk will continue to be collected as normal and in the future will be delivered to Fonterra's nearby Cobden and Dennington sites for processing."
Part of Fonterra's investment plan at Cobden involves buying the neighouring former National Foods site for future expansion.
The Cororooke closure will happen in stages over the next year.