The government has pledged €100m of public money to the aid package, which is expected to trigger €300m in gross capital investment across the dairy sector, according to Mary Coughlan, Ireland's minister for agriculture and food.
The investment, to be delivered via the Enterprise Ireland group, is intended to help re-organise the Irish dairy industry so it can process products more efficiently and market them more effectively.
Pressure has intensified on Ireland's dairy industry due to European Commission price cuts on dairy commodities, as well as an increasingly competitive export market.
All dairy firms across the EU face a challenge to produce more added value products in coming years.
Coughlan said the €100m state aid was essential to help Irish dairy firms stay competitive. "With continued vision and leadership, the Irish dairy and wider food sector has the potential to become the brand and origin of choice with today's quality conscious consumer across the globe."
Ireland's dairy industry only makes up around four per cent of the EU milk supply, but is heavily reliant on foreign markets. It exports 80 per cent of its dairy products, according to the Irish Dairy Board.
Coughlan said the investment, which must still be cleared by the European Commission, was supported by the Irish Dairy Board and processing companies.
Producers, too, have reacted positively. "The €100 million funding is a vote of confidence in the future of the Irish dairying industry," said Jackie Cahill, president of the Irish Creamery Milk Suppliers' Association.
She warned, however, that the investment "must be focused exclusively on products and markets that will give the highest return to dairy farmers".
She added that the funding would not be a magic wand in itself. "A return on new investment will only be achieved if there are substantial cost reductions on the processing side coupled with increased return from the market place."