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AgResearch chief executive Dr Andy West said the Government was sending mixed messages.
On the one hand, it had approved $17 million for the new animal reproduction and genetics building at the North Taieri Invermay campus, but the Foundation for Research, Science and Technology (FRST) yesterday declined to fund the science.
The centre would open in December and its future was secure for the next three years.
But unless AgResearch was able to find more than $3.5 million a year after that, Dr West said he would have to look overseas for animal reproduction contracts"Overall, it's not particularly good news for Invermay," he said.
The FRST manager of investment strategy, Richard Templer, said in a statement AgResearch's position was affected by "wider issues in the meat and wool sector".
Of the 96 contested contracts awarded, AgResearch secured 14, worth a total of $67 million, including $7.5 million over three years for animal reproduction.
"While this might not have been all the funding AgResearch sought for it, it is the nature of a contestable process that not all proposals will get all the funding sought."
Invermay's new $17 million complex will house 49 people in a joint AgResearch-University of Otago genetics and animal reproduction team.
Nine of those relocated south from the Wallaceville campus, near Wellington.
Dr West said AgResearch had 45% of its contracts up for renewal in FRST's latest round, but had funding cut by $18 million, a decision he accepted as "part of life".
But, he said, there were mixed messages from the Government, which strengthened his view science funding was flawed.
"There is something seriously wrong with science funding when you can get sign-off from the Government for $17 million in funding to construct a new building, then the Government questions whether reproduction research is a priority."
AgResearch has also had a cut to its textiles research, affecting a $21 million investment in a Lincoln textiles company, Canesis.
The loss of $1 million a year meant AgResearch would now look overseas for wool research contracts in a bid to retain staff, effectively helping competing wool producers.
"There is only one future for textiles and that is we have to look for work from overseas industry or overseas governments. Either that or we make everyone redundant and close it down."
Canesis was about to launch eight new woollen fabrics at New Zealand Fashion Week, including a lightweight, stab-resistant material, another that was heat resistant, and an environmentally friendly outdoor jacket fabric.
Dr West said the loss of funding raised serious concerns for the sheep industry, which relied on viable lamb and wool industries to compete with dairying.
"Without wool, we can't make the numbers work for sheep to compete with dairying on our flat land."
Dr West hoped to secure transitional funding so scientists could switch research projects.
But he warned it could be hard to retain scientists, especially with AgResearch's Irish equivalent actively recruiting 60 pastoral scientists.
Science, Research and Technology Minister Pete Hodgson said FRST was independent of the Government and he had no influence on its funding decisions.
FRST had 17% more money to allocate this year, including a large increase in the primary sector, and it was still to announce contested and transitional funding.