The government is investing $3 million in the creation of New Zealand's first 100 percent recycled plastic food packaging range.
Pact Group (NZ) Ltd will make recycled packaging for meat and bakery trays, and and deli, food and produce, food and containers.
Its new Auckland plant will allow recycled Type 1 or PET plastic to be decontaminated and made back into food packaging.
Associate Environment Minister Eugenie Sage said the grant enables PACT Group to prioritise this project ahead of many others.
"This is a major step forward for a company that is the largest manufacturer of rigid plastics packaging products in Australasia."
Ms Sage said recycling plastics for food containers was part of an effective response to China's National Sword policy that restricted the amount of waste imports it accepted.
"This new plant will contribute usefully to increasing New Zealand's on-shore recycling infrastructure," Ms Sage said.
"Like other countries, New Zealand's economy to date has been based on a 'take, make and dispose" model, which treats nature and the resources it provides as 'free' and disposable.
More materials recovery and local re-processing infrastructure helps us shift to a more sustainable and efficient circular economy, where products are designed to have a long life, and materials can be recovered and easily reused, recycled, remanufactured," Ms Sage said in a statement.
PACT Group New Zealand executive general manager Eric Kjestrup explained how the process would work.
"Take the bottles, they are then shredded to get the flake...it's totally decontaminated and at the end of it comes out pellets. The pellets then go through another extruder and it produces sheet," he said.
"That sheet goes into a thermoformer [which] stamps out the trays."
Mr Kjestrup said those trays, once used and cleaned, could then go through the whole process again.
Brett Henshaw from Fonterra said he was delighted by the new initiative.
"Fonterra have signed up to zero waste to landfill by 2025 and 100 percent recyclable, reusable and compostable by 2025 as well," he said.
Mr Henshaw said this new project would help the company to reach this goal.
The scheme is expected to be up and running in nine to 12 months.
Ms Sage said the public also had to do their part and make sure they were recycling correctly.
"Getting the right materials in the crate is absolutely critical ... people need to do better," she said.
"One thing people can do to help is ensuring that their containers are clean when they put them in the kerbside bin."
Ms Sage was unable to give a figure on how much the new recycling initiative would dent the total amount of plastic used in New Zealand, saying the country had very poor waste data.
The funding from the Ministry for the Environment's Waste Minimisation Fund amounts to half the total cost of a new manufacturing plant.