The Murray Goulburn Co-Operative said yesterday that it had decided to shut the Leitchville cheese-making operation because of a fall in milk volumes caused by the drought.

Leitchville is north of Bendigo and close to Kerang and Cohuna. According to the 2006 census, it has 116 people in the labour force, with the biggest employer the dairy industry.

Gannawarra Shire Council deputy mayor Neville Goulding, a local dairy farmer, said the loss of jobs would cause ''total devastation'' for that community. There would be ''flow-on effects'' to schools and pre-schools, he said, which would be disappointing.

He said the drought had made the Leitchville site ''totally uneconomical'' because of the fall in volumes.

Mr Goulding said the Brumby government had ''no interest in the area'' and attacked its water and conservation policies. ''They have not put a cent back into the community … and couldn't give a stuff about farmers in Victoria.''

Murray Goulburn Co-Operative managing director Stephen O'Rourke said milk production in the northern Victorian and southern Riverina had nearly halved since 2002.

Mr O'Rourke said they would try to relocate employees from Leitchville, and those who lost their jobs would receive their full entitlements and severance pay.

''Unfortunately the closure was unavoidable given the relentless dry conditions impacting on milk supply in the region,'' he said.

Mr O'Rourke said the co-op was working with the Victorian government to minimise the job losses in the area, and employees who lost their jobs would receive financial counselling, retraining and outplacement services.