HISTORIC Casterton is bustling with energy, writes KATE DOWLER

Casterton is the birthplace of the kelpie breed, but there is much more to the far-west Victorian town than sheep and dogs.

Steeped in history and nestled among dramatic, rolling hills, Casterton has a surprisingly bustling main drag, Henty St.

On the Glenelg River, Casterton, population 2000, is 352km west of Melbourne on the Glenelg Highway, almost on the South Australian border.

The region is supported by large pastoral, mixed-farming, timber-producing and dairying industries.

The Kanalgundidj clan occupied this area before white settlement, with the first Europeans in the area being surveyor and explorer Thomas Mitchell's party, in 1836.

He met the Hentys at Portland and his reports of good grazing country encouraged them to move inland in 1837, marking the start of European settlement in the Western District.

Casterton is also home of the Scout emblem, which is embossed on the hill overlooking the town, book-ending the main street with the Glenelg river running beneath.

Drive up Henty St today and you will be greeted by smartly painted, veranda-clad shops, almost all locally, independently-owned and operated.

But times are changing.

The historic Pedens home and hardware store, among Australia's oldest family-operated businesses, having traded for 100 years, has just gone into liquidation. And a well-loved local cafe has also closed.

But there is hope on the horizon.

New businesses are springing up, driven by enthusiastic, young people, who see the towns strengths and potential.

One exciting new venture is Penny Carson's Say Grace Cafe & Larder at the Glenelg River end of town.

She has salvaged a vacant, rundown shop, and transformed it into a warm, inviting eatery.

With help from her partner Scott Farquharson and front of house manager, Emily McEachern, Penny opened her store last weekend.

The girls are both just 26 years old and Penny, a chef, has catering and hospitality experience, while Emily has a wine-marketing background.

"We wanted to create somewhere people our age would love to come. A place with fresh, exciting food that's accessible to everyone and made from as much beautiful, local produce as we can source," Penny says.

Right on the river is the Glenelg Inn, Casteron's first building, dating back to 1846.

It's has been run for the past two years by Troy and Prue Robbins, who are 32 and 26.

Walk back up the street and turn left on to Clarke St and you will find Bruce and Janet Cross' bed and breakfast, Clarke Street Cottages.

They opened in June last year, after restoring the historic, 1870 building.

"The town is going through a period of change," says Bruce.

"Some businesses are closing and others opening. The blue gum companies' difficulties have been a hiccup that's having an impact.

"The biggest threat to the area is an ageing population.

" However, what we do have is great social capital and sense of community."

Wander back up Henty St and you will find the popular Herberts Bakery.

Further on, past the art-deco Town Hall, you'll find Poppy's Lovely Linen, owned by Mary Perkins, who arrived from Stawell 16 years ago.

Back down Henty St you'll find Casterton Agricultural, co-run by Brian Burns, who is also on the Working Dog Kelpie Muster committee, which holds the annual event each June long weekend.

Local artist Almar Zaadstra, whose art gallery and shop are opposite Say Grace on Henty St, celebrates the region's pastoral and pioneering history in his works.