A dairy company sourcing milk from 36 farms in west Wales has abandoned plans to start bottling milk in St Clears because of a major planning hold-up.

Llaeth Cymreig had overcome initial local objection to win planning approval to convert a derelict warehouse into a milk pasteurisation, bottling and distribution unit.

The £500,000 investment had been the final hurdle to achieving the vision of six farmers who first formed the company - to sell milk which can be branded as both produced and processed in Wales.

But that investment is now set to shift to Ceredigion because of an on-going block on new developments by water utility, Dwr Cymru. The embargo had been in place for some years because the town's sewerage system is overloaded.

The company now says that the bar will be lifted by 2007 because of scheduled improvements which will create additional capacity for new developments.

But director Trevor Routley, who gave up milk production to run Llaeth Cymreig from his converted dairy at Fferm Fach, Blaenycoed, Carmarthen, said the investment had come too late for the milk business.

"We were on hold for so long that we had to take the decision to pull out of St Clears,'' said Mr Routley. "It is a huge shame for the town because a substantial amount of jobs would have been created.''

He confirmed that the company was now looking for sites in neighbouring Ceredigion. Llaeth Cymreig sells milk to a range of processors including Dansco and farmhouse cheese makers.