5/8/07 (Reuters)  - MEDAN, Indonesia: Indonesia expects palm oil output to grow sharply in the next two years but stricter forest protection may then slow expansion, a senior industry official said.

Indonesia is set to take over from Malaysia as the world’s top palm oil producer this year because of rapid expansion in the last five years.

“We expect to see output grow by eight to nine percent until 2009. But we have yet to see if we can sustain the growth beyond that period,” Derom Bangun, executive chairman of the Indonesian Palm Oil Producers Association, told Reuters in an interview.

Indonesia’s crude palm oil output is projected to hit 17.4 million tonnes in 2007, up from 15.9 million tonnes in 2006.

Palm oil producers have asked Jakarta to clearly define forest areas that need conserving.

Environmental groups are concerned that rapidly expanding palm oil plantations, partly due to ambitious biofuel plans, are damaging rain forests and driving out rare species. Indonesia, which currently has six million hectares of palm oil plantations, may also restrict expansion by holding companies despite record-high crude palm oil prices.

Demand for biofuel is booming, prompted by government policies to reduce dependence on crude oil and cut carbon dioxide emission. Indonesia plans to plant more than five million hectares with palm oil, jatropha, sugar cane and cassava by 2010 as biofuel feedstock. reuters