A foreign-owned milk supplier will scale back Queensland operations less than a month after winning a controversial hospital contract over the Sunshine Coast's Maleny Dairies.

French-owned Lactalis Australia said a Queensland milk shortage would force the company to close its Rockhampton factory by the end of the month, leaving 47 workers without a job.

Milk producer Lactalis is scaling down its Queensland operations. Wolter Peeters

"This decision was not taken lightly, however the factory has not been processing at full capacity for a number of years and is only in operation three to four days per week with redirected milk supplies from south-east Queensland," the company said in a statement.

It will also scale back yoghurt production at the South Brisbane factory during 2020.

"Currently, there is insufficient farm milk in Queensland to also support yoghurt manufacturing so the factory has relied on transporting milk from other states to meet demand," it said.

"Yoghurt manufacture will transition to other Lactalis factories in Victoria and Tasmania, which will reduce transportation requirements of milk between the states."

Lactalis, which produces Pauls, Ice Break, Vaalia and Breaka, was awarded a contract to supply milk to the Royal Brisbane and Women’s, Prince Charles, Redcliffe and Kilcoy hospitals.

In a statement in January, family-owned Maleny Dairies claimed the decision was made purely on which company would be cheapest and said it went against the state government's Buy Local initiative.

"Had Maleny Dairies been awarded the tender, it would have ensured the safeguarding of the local workforce employed by the company and that of our dairy farms, which has seen Queensland dairy farm numbers drastically drop from 350 in 2018-19 to a shocking 303 in 2020," the company said.

"In this case, the tender process appears to have been solely focused on the ability to deliver the cheapest milk, regardless of the consequences to local employment and industry collapse."

Health Minister Steven Miles said the contract had gone to Lactalis because "Maleny Dairies couldn’t supply the volume needed for Metro North's dairy contract and, more importantly, couldn’t supply all the products to meet the dietary requirements of sick Queenslanders in hospital".

LNP agriculture spokesman Tony Perrett accused Lactalis of "putting the profits of its foreign owners ahead of the jobs of Queensland workers and dairy farmers".

"This morning the LNP tabled a motion in Parliament demanding that Labor review its decision to snub Maleny Dairies over Lactalis and award at least part of the contract to a Queensland-owned business," he said.

Rockhamptom MP Barry O'Rourke said there had been no warning and no consultation about the closure.

"To say I’m outraged about this is beyond an understatement. Words fail me," he wrote on Facebook.

"When I was at the Paul’s factory just two weeks ago to show my support for the workers there was absolutely no inkling the company was planning to close the site down.

"I was happy to show this company my support on the basis it employed locals. To have them turn around and do this less than a fortnight later is a disgrace."

Queensland Dairyfarmers' Organisation president and Lactalis supplier Brian Tessmann said the closure of the Rockhampton factory was "inevitable".

"While this certainly will be a devastating blow to those employed at the Rockhampton plant, the closure should not affect the dairy farmers currently supplying to Lactalis," he said.

"Production into the Rockhampton factory has been sporadic for a while now.

"Milk produced in the central Queensland region for Lactalis will simply be transported down and processed in either the Nambour or South Brisbane factories."

Mr Tessmann said Queensland milk production had dropped by more than 15 per cent from 2018 to 2019 and would continue to drop as a result to the drought.

CORRECTION: An earlier version of this story stated that the contract had previously been held by Maleny Dairies.