The community of Leitchville has been left reeling after Murray Goulburn's announcement last week that the town's milk processing factory has closed.

Leitchville has been hit hard by the drought, and the closure of one of the biggest employers in Gannawarra Shire is certain to have implications that will be felt right across the broader community.

Business owners and community members in the town of 330 people have described the news as devastating, shocking and surprising.

The announcement was made the same day as the last shift operated, on Wednesday.

Murray Goulburn managing director Stephen O'Rourke said the milk production decline as a result of the drought was responsible for the closure.

"The decline in milk volumes since 2002 has led us to the very tough decision to cease operations at Leitchville," Mr O'Rourke said.

"Milk production across the northern Victoria and southern Riverina region has fallen from 3 billion litres in 2001-02 to a forecast 1.75 billion litres for 2009-10.

"Consequently, Murray Goulburn can no longer viably continue operation across four northern Victoria milk processing sites, and the Leitchville closure was unavoidable."

Milk will still be collected from the region's suppliers but will be processed at Rochester, Cobram or Kiewa.

About 80 employees will lose their Leitchville job, but Murray Goulburn said it was offering redeployment at other company sites.

"Unfortunately the closure was unavoidable given the relentless dry conditions impacting on milk supply in the region."

He said all employees unable to be redeployed in the Murray Goulburn business would receive full entitlements including severance pay as well as financial counselling, retraining and outplacement services.

Other Leitchville-based services - milk transport and field services - will continue as normal.

The future of the site is unclear; the public relations company answering questions about the closure said no decision had been made about the plant and equipment.

In a statement, Mr O'Rourke said the decision was necessary to ensure that the long-term interests of Murray Goulburn's supplier-shareholders were protected.

Mr O'Rourke said the Leitchville announcement would not impact MGC's capacity to deliver to its customers, and he was confident that strategies for growth in retail and value-added ingredients would deliver sustainable farmgate returns into the future, with MGC's farmer-shareholders receiving the benefits of all market returns.

Michael Walker who runs the local IGA supermarket said while the news was yet to really sink in, it was important to try to stay positive and support the town.

"There are businesses still here - we have already lost the butcher's shop, the garage and two cafes, we don't need to lose any more," he said.

School Council president Sharon Keath said with no factory to attract employment, future enrolments at the school could be affected.

"The town will have to pull together and support each other," Mrs Keath said.

A maintenance electrician at the factory, Steven Wales said he was gutted and devastated by the announcement.

"We have to move on, but who is going to employ a 52-year-old bloke? There are no electrical jobs at Rochester or Cobram," Mr Wales said.

For Murray Goulburn's statement see www.countrynews.com.au