In January 2024, a significant shift is unfolding in Australia’s dairy landscape, particularly with the announcement from Lactalis, the country’s largest dairy processor known for its popular brands like Pauls, Oak, and Ice Break. The company revealed plans to close its West Gippsland factory by early 2027, a move that is projected to result in the loss of approximately 50 jobs. This decision is poised to affect the small town of Longwarry, where these jobs account for about 7.5% of the local workforce, impacting around 4,000 residents.
Lactalis, which acquired the factory in 2019, cited a thorough review conducted after purchasing its competitor, Fonterra Australia, as the catalyst for this decision. The review highlighted an oversupply of production sites coupled with insufficient raw milk volumes, necessitating a consolidation of operations. Longwarry has been operating at a mere 40% capacity, rendering its long-term sustainability questionable in comparison to larger, more modern facilities like the nearby Darnum factory, which operates at roughly 70% capacity.
The closure of the Longwarry facility will be phased, with partial shutdowns commencing in August and continuing through November, ultimately leading to full closure in the first quarter of the following year. In a statement, Lactalis Chief Executive Mal Carseldine reassured dairy farmers that milk supply contracts would remain intact during this transition, with collections continuing without interruption. This commitment reflects Lactalis’s broader strategy to maintain its presence in Victoria, where it has invested over $100 million at Bendigo and is allocating an additional $35 million at Lidcombe. Furthermore, the company has pledged more than $200 million towards modernizing manufacturing facilities across Australia through 2025/26.
However, the Australian dairy industry is grappling with considerable challenges, including restricted milk pools, soaring energy costs, and excess drying capacity. Dairy Australia forecasts a 2% decline in national production by 2026/27, a prediction heavily influenced by the turmoil in the Middle East, which has contributed to rising fuel and fertilizer costs. Additionally, the Australian dollar’s fluctuating exchange rate—having risen from US$0.64 in April 2025 to US$0.71 a year later—has hindered the competitiveness of Australian exports. Although a slight strengthening of the dollar is anticipated in the coming year due to cash rate hikes, this may further complicate export dynamics for dairy producers.
Despite these challenges, a glimmer of optimism persists within the industry. The National Dairy Farmer Survey, conducted over the year leading to February 2026, indicates a notable increase in farmer confidence, particularly among Victorian farmers. The sentiment regarding the future of the industry saw an uptick from 52% to 62%, while confidence in individual operations surged from 71% to 80%. This positive shift reflects a resilient spirit among farmers, even as they navigate an uncertain market landscape.
As the industry braces for the impending changes brought about by Lactalis’s consolidation, the focus remains on adapting to evolving market conditions and ensuring that dairy farmers remain resilient in the face of adversity. The commitment to redeployment opportunities for affected employees and the ongoing investments in modern facilities signal a strategic approach to maintaining competitiveness, even as the market faces a host of challenges. The upcoming years will undoubtedly be pivotal for the Australian dairy sector as it strives to balance operational efficiencies with the demands of an ever-changing global environment.
Reviewed by: News Desk
Edited with AI assistance + Human research
