A former long-time supplier of milk processor Fonterra said the company only had itself to blame for the closure of one its factories this week.

The New Zealand company informed 98 workers at its 108-year-old Dennington plant in south-west Victoria that production would cease in November.

Australian managing director René Dedoncker told the ABC yesterday there were a number of factors behind the closure, including supply issues, the plant's limitations, changing product plans, the general downturn in the dairy industry, and weather conditions.

But many in the industry, including former supplier Noel Roache, say Fonterra doomed itself with a controversial payment clawback scheme on 2016.

The scheme involved Fonterra following dairy co-operative Murray Goulburn's massive farm gate milk price drop, and then attempts to recoup payments they had already made to farmers.

Mr Roache, whose family supplied Fonterra for four generations until 2016, said the clawback led to farmers leaving Fonterra in droves and played a significant role in the closure of the Dennington factory this week.

"It was sort of inevitable with the way that they treated us back in 2016," Mr Roache said.

"It ruined our faith in the company. They were pretty pathetic back then.

"For them to do what they did back then, that's why (this closure) is happening today."

The plant's closure will result in the loss of 98 jobs. ( ABC South West Victoria: Daniel Miles )

He was one of many south-west farmers that had to borrow money and re-evaluate their entire business in order to stay afloat in the wake of Fonterra's clawback demands.

"When they did the clawbacks, the only way we could protest against their pathetic decision (was to leave)," Mr Roache said.

"When you treat farmers like that they can only protest in one way, and that's to leave. Fonterra's lost a lot of farmers because of that one decision."

Clawbacks played 'massive' role

He is not alone in his views. As one farmer told ABC's 7.30 last year "the processors have been pretty despicable in their actions over the last couple of years, particularly Murray Goulburn and Fonterra with their clawbacks".

One Fonterra supplier, who wished to remain anonymous, said the role clawbacks played in the Dennington plant closure was "massive".

"To turn around and clawback like Murray Goulburn did, it was disgraceful," they said.

"That's when they lost a lot of suppliers — people were disgusted they could treat loyal suppliers like that, especially families that had supported them for years and years (and who) expected Fonterra to do the right thing by them."

The Fonterra supplier said the company's actions in 2016 changed the dairy industry completely.

"Since the clawback, the days of loyalty to a particular factory is over," they said.

They said they had only stayed with Fonterra as a supplier because they were a small farm and it was too much hassle to change as it did not fit in with their future plans for the property.

Early decisions had impact

United Dairy Farmers of Victoria president Paul Mumford agreed the clawbacks saga had permanently altered the relationship between suppliers and processors.

Our best stories in your inbox Subscribe to Rural RoundUp: Get our best stories from rural and regional Australia every Friday.

Mr Mumford said that while there were other factors in the decision to close the Dennington plant, the clawbacks were a significant one.

"What we're seeing today is the effects of those things that happened back in 2016," he said.

"Those business decisions made back with the milk price debacle have eventually flowed onto what we see today.

"We have to give (Fonterra) the benefit of the doubt in some regards, but at the end of the day dairy farmers must make sure that they get the best milk price for our milk."

Worker weighs in

Frank Kelly has worked at the Dennington factory for 40 years and says the clawbacks were a major factor in the plant's closure. ( News Video )

Factory worker Frank Kelly, who has lost his job at the plant after 40 years, said the clawbacks saga was "the main issue" behind the closure.

"What Fonterra has done to the farmers — that's directly affected us and that's where we sit today," Mr Kelly said.

"We've got no milk. Something had to give and unfortunately it's us."

When asked by the ABC about the role Fonterra's own actions, including the price step-down, had on the dairy industry, Mr Dedoncker said all processors had to take some accountability.

"We don't step away from that," Mr Dedoncker said.

"The Industry has been challenged for some time now, including that era, that moment.

"So what we're doing is we're saying we've got to own our future, and we've got to own our part of this."

Several factors at work

Fonterra Australia general manager of operations Rob Howell pointed out the Dennington factory was at maximum capacity during the 2017-2018 season.

"Challenges in the dairy industry over the past three years are a factor in the reduction in Fonterra's milk intake," Mr Howell said.

"The reduction in Fonterra's milk intake this season is in part due to structural changes in the dairy industry since 2016, but also because of the declining milk pool due to the drought, which has led to excess processing capacity across the industry and heightened competition for milk as processors compete to keep factories full."