Richard Teurukura was monitoring the conveyor belt at the "potato reception area" of the factory when he investigated what he thought could be a muddy potato or an oddly shaped stone.
Teurukura cleaned some of the mud from the object and showed it to a coworker, who said it appeared to be a grenade.
"It looked very much like a muddy potato originally," Roland Spitaels, the factory's operations manager, told Stuff.co.nz. "The guys were really calm and collected and they reacted in an extremely professional manner."
Police were called to the factory and they summoned the New Zealand Defense Force's explosive ordnance disposal team.
The bomb squad determined the object was a Mills bomb, a hand grenade common during the World War II era. The grenade was X-rayed and found to be a non-explosive grenade, likely used for training purposes.
Spitaels said the incident was the first of its kind in the factory's 30-year history. He said he is hoping police will return the grenade to the company so it can be displayed in the factory's "trophy room."