The Ministry for Primary Industries is backing a project to investigate the viability of large-scale spirulina production in New Zealand.
Spirulina is generally cultivated in ponds or natural lakes, harvested and dried.
MPI said the the two-year project involved testing new growing and processing systems and looking at new ways spirulina can be consumed.
The money would come from MPI's Sustainable Food & Fibre Futures Fund and Manawatu company, NZ Algae Innovations. Industry funding amounted to $390,000 and MPI was contributing $260,000.
Spirulina is sold as a health supplement because it's strong in protein and iron.
NZ Algae Innovations director Justin Hall said the company had been growing spirulina commercially for 18 months and wanted to branch out.
"We want to understand what consumers are looking for, and whether taking spirulina in powder or capsule form is working for them. Our research so far has included looking at how to incorporate spirulina into a range of added value food products," he said.
"We've already been experimenting with creating whole dried spirulina sprinkles, which taste nutty - a bit like nori [dried seaweed], with the intent of attracting new consumers."
Steve Penno, director investment programmes at MPI, said establishing an algal protein sector could be worth more than $100 million a year and have considerable benefits for New Zealand.
"Spirulina farming has the potential to create exciting new employment and export opportunities for this country. It would also support the Government's ambition to be carbon neutral by 2050, by offering a new financially viable and sustainable land use option."