The company plans to process up to 100,000 tonnes of recycled plastics for use by food makers from next year.

The Newcastle company already recycles PET and HDPE bottles for industrial uses such as gas piping and in the fibre sector. But it is seeing strong demand from the food industry which is under pressure to cut down on packaging waste.

AWS announced today that it had attracted a £2m investment, which will support its plant expansion, allowing it to start hot washing of recycled plastics for food-grade uses.

The recycled plastic has to be cleaned of residues before it can be used in contact with food and drink.

Following a £14m upgrade to its plant, AWS will become the world's largest facility for food grade plastics, it claims. The food grade pellets should be ready for sale by the fourth quarter of this year.

"There's nobody really making food grade plastics in the UK and there's probably less than 10,000 tonnes on the market. We're currently in various stages of negotiations with some of the biggest PET companies," Jonathan Short, managing director of AWS, told FoodProductionDaily.com.

The UK food industry accounts for 10 per cent of all industrial and commercial waste or 6.5 million tonnes, according to the government, and is under pressure to significantly reduce waste, especially from packaging.

In a special environmental plan launched in October the Food and Drink Federation pledged that its members would cut packing materials by 340,000 tonnes by 2010, from the 4.6m tonnes used in 2005, a reduction of 13 per cent.

The companies also pledged that no food and packaging waste would go to landfill from 2015.

Yet the UK has lagged behind Europe in operating the advanced technology to convert waste plastic bottles to high quality pellets - which can be as good as or in some cases better than the virgin material.

AWS will produce pellets with a recycled content of up to 30 per cent depending on customers' requirements.

AWS won £1.5m in funding from the Sustainable Technology Fund run by investment company E-Synergy as well as securing £400,000 from another investment specialist, NorthStar Equity Investors, and £100,000 from a private investor.

"This announcement shows AWS is set to be a serious contender in the 'food grade' market and we look forward to finalising some significant offtake contracts within the coming weeks," said Short.