Paul Tyler's comments came after a Cornish chicken company called in the administrators, despite being given �1.4m from Objective One, which directs European money to regions classed as in need of support.

Thirty-seven people have lost their jobs at Camel Valley Poultry near Camelford.

The team which runs the funding programme in Cornwall says failure rates for projects are small.

OBJECTIVE ONE March 1999, Cornwall & Scilly designated as an Objective One region Criteria: Gross Domestic Product per head of population, was below the threshold of 75% of the European average �300 million in European funding available, to be matched by UK funding

But Mr Tyler said there should be an investigation by the Objective One team which made the grant two years ago when Camel Valley Poultry was undertaking a �3m expansion scheme.

He said: "We are very concerned to make sure that all the public money that we have got with great difficulty for Cornwall is spent wisely.

"It has to be an important investment in the future economic basis of Cornwall so this is a major disappointment.

"There may be some extenuating circumstances, but I am sure we have to have a proper inquiry."

He added: "There have been concerns that Objective One was all too happy to help with very big schemes and big companies rather than comparatively modest schemes with locally-based family firms."

Small businesses

Mark Yeoman, strategic manager for the Objective One Partnership said 20-25,000 businesses had been developed with its help since 1999.

This had involved investment of about �100m, with �37m of European investment.

He said: "There are a number of important gateway funds that are specifically for small and family-run businesses to access European funds."

He said that collapse of Camel Poultry was "very unfortunate".

"At the moment we don't know the reasons why the business has been unsuccessful and that is why the administrator has been called in.

"It seems the banks have called in their overdrafts at very short notice, but we will find out exactly why the business has failed when the administrators have done their work."