PACIFIC National and grain handler GrainCorp will cease rail freight operations on the Yaapeet to Dimboola rail line.
GrainCorp southern division manager Jack Tansley said officials had deliberated on lines they would cease to service while finalising a contract.
He said officials finalised their decision to cease carrying freight on the Yaapeet line in past weeks.
Speaking at a Hindmarsh Shire Council meeting on Wednesday, Mr Tansley said the decision was based on the Rail Freight Network Review.
The review, chaired by former Deputy Prime Minister Tim Fischer, ranked Victorian rail lines into four categories of platinum, gold, silver and bronze.
The review, which was released last December, placed the Yaapeet line in the bronze-level category, the lowest level of investment priority.
The decision means farmers at Rainbow, Jeparit and Yaapeet must carry their grain to GrainCorp's Warracknabeal grain centre instead of the Rainbow depot.
Mr Tansley told council GrainCorp would speak with them, the community and growers about suitable roads for grain movement.
He said the companies stopped using the Yaapeet line because of the condition of the track.
Cr Mick Gawith: "It is ironic that yesterday there was maintenance being done on the line."
Cr Darryl Argall called for GrainCorp to provide council and growers with a clear direction of where rail freight was headed in the area.
He said upgrades to the Rainbow- Dimboola Road would be of `enormous' cost.
Mayor Rob Gersch: "We're talking about upgrading a major road.
"If we lobby to upgrade the road, that money would surely be better used on rail."
Cr Ross Heinrich said the extra travel for farmers would make grain movement more expensive.
He said there would have to be `millions and millions of dollars spent' to upgrade the road properly.
"It bounces that much you lose some of it anyway," he said.
Cr Joan Bennett: "The big picture at the moment is the worldwide shortage of food. We grow food and we do it very efficiently.
"This area is very, very well suited to grain.
"It seems strange to me GrainCorp is not considering, when cutting back services, that it will make it more difficult and expensive for farms to operate and produce grain and stay productive."