KUALA LUMPUR, Feb 27 (Reuters) - Ice cream lovers and French fry fanaticswould not know it but these foods put a taste of Malaysia in their mouths.They are dining on palm oil, an ingredient in many processed foods, andunknowingly entering a debate on a controversial, yet key, crop for theSouth East Asian nation and fellow producers.Critics say palm oil contains unhealthy fats and comes from plantationscut from the forest homes of threatened species such as orangutans andelephants.But Malaysia, which earns $4.5 billion a year as the world's largest palmoil exporter, is squaring up to defend its main agricultural crop."We have now got to make a stand. As far as Malaysia is concerned we'vegot a fantastic story to tell, which the outside world does not know,"said M.R. Chandran, the chief executive of the Malaysian Palm OilAssociation that represents 40 percent of the country's growers.Palm oil supporters argue research on fat in the human diet isinconclusive, only a few errant growers cause environmental damage, andthe crop brings valuable income to remote rural communities.Flying into Malaysia's Kuala Lumpur International Airport gives a view ofrow upon row of palms, with oil-bearing fruit bunches lodged among frondsthat flourish in equatorial humidity.Palm oil plantations cover 3.5 million hectares (8.6 million acres), atenth of Malaysia and an area bigger than Belgium.From nothing in the 1950s, the oil palms have ousted the rubber trees ofBritish colonial times to dominate Malaysia's farm sector. Palm oil makesup five percent of exports, valuable diversity in an economy built onelectronics and crude oil.Last year palmoil futures hit 3-1/2-year highs on ravenous world demandfor edible oils and shortages of arch-rival soy oil.But scarcity of suitable new land and perennial problems with foreignlabour mean Malaysian production will soon slip behind that ofneighbouring Indonesia.BLACKENED NAMERampant forest fires on Borneo island in the late 1990s blackened thereputation of palm oil, as haze blanketed much of Southeast Asia forweeks. The fires, mainly in Indonesian parts of the island, were oftenstarted to clear land for oil palms.The fires stoked talk by Western environmental groups of a palm oilboycott, to the alarm of growers and local green groups."Oil palm is not one of those commodities you can say is all bad -- thereare benefits. A boycott would not solve the problem," said Meena Raman,Friends of the Earth Malaysia's secretary general.For plantation workers, poor smallholders and rural economies, oil palmsprovide vital income.Raman differentiates between East Malaysia on Borneo island -- which plansto expand plantations by 700,000 hectares -- and Peninsular Malaysia,where there is scant land for new planting."As far as East Malaysia is concerned, Sarawak in particular, the concernthere is that oil palm plantations are being pushed into lands owned byindigenous people."We feel that there are a lot of threats to the forest -- logging is stillgoing on, then there is dam building and pulp paper plantations -- it'snot just oil palm alone."FAT ISSUEAmong health agencies palm oil is controversial for its high saturated fatcontent compared with soy oil. The effect of different types of fat is acentral element in debate about cholesterol build-up and resultingcoronary heart disease.The World Health Organisation lists cholesterol as one of five factorsresponsible for a third of all disease in the West."The world is living dangerously -- either because it has little choice orbecause it making the wrong choices," the U.N. agency said in its latestannual World Health report.But the Malaysian palm oil industry says research into the health effectsof fat are still unclear."If you took two groups of eminent scientists and nutritionists in Europeand the United States, they would probably disagree," says Chetan Ishrani,a senior executive with broking firm Agritradex, which trades in mostedible oils -- including palm and soy oil."The question is what effects the two different kinds of foods have on thehuman body and the jury's still out on that."JOBS NEEDEDJames Dawos, a senior state government official in Sarawak, says criticsalso ignore the state's development needs, which are more basic thanelsewhere in Malaysia or anywhere in the West."We still need development. We don't want to live on the top of thetrees," he said.Sarawak assigns total protection to 10 percent of its land, 50 percent forforestry and allows development on the rest.But the picture is complicated by native groups that contest the state'sright to develop what they say is ancestral land. They want a greatershare of development benefits.In Sabah, Malaysia's most eastern state, environmentalists are trying tomarry the interests of planters with those of local people and wildlife."We are not talking in terms of a boycott or using alternative oilsbecause then we are just passing the problem from one country to another,"says Andrew Ng, a policy analyst with the Worldwide Fund for Nature.Palm oil trees, which thrive only in the tropics, produce a lot more oilper hectare than rivals such as soybeans and canola.That may prove critical as world population grows."If you want to get the most oil from the least land, palm oil is best,"says Ishrani."It's the cheaper oil so its consumption and production are going to grow,there's no way to stop it."