JAKARTA, Aug 22 (Reuters) - Indonesia will proceed with plans tosharply boost palm oil output over the next three years to quench thethirst of bio-fuel makers, despite opposition from environmental groups,the agriculture minister said on Monday.Anton Apriyantono added that Indonesia would aim to sharply cut sugarimports in 2006 following a bumper domestic sugarcane harvest. Jakarta isalso studying the benefits of growing genetically modified crops."We will consider incentives for the palm oil sector and of course theenvironment will be our priority," he told Reuters in an interview. "Wewill have to boost output. Not only do we expect increased demand for foodbut we also expect a huge market for bio-energy to open up."He did not specify what incentives the government was considering forthe sector.Apriyantono said Indonesia, the second-largest producer and exporter ofpalm oil, after Malaysia, would aim to boost the crop area under palmplantations to 8 million hectares in the next three years from the current5 million.Indonesia produced 12 million tonnes crude palm oil in 2004. Area underpalm oil in Indonesia has doubled since 1999.Plans by Indonesia to boost output come at a time whenenvironmentalists are blaming the latest forest fires, and the haze thatfollowed, on palm plantations. Critics say workers light the fires toclear land, an illegal practice they say has been largely overlooked bythe government.In addition, Indonesia is considering setting up the world's biggestpalm plantation -- covering an area of 1.8 million hectares -- inKalimantan, along the border with Malaysia.Bio-fuels are taking on renewed global importance as countries seek tocut hazardous emissions. Palm oil's emergence in the market comes decadesafter the introduction of ethanol, made from sugarcane, and otheradditives.

FOOD OUTLOOKFor food, Apriyantono said Indonesia is also witnessing increaseddemand for its palm oil from customers such as India, which imposes arelatively lower import duty on crude palm oil, giving it an edge overrefined oil sales by Malaysia."We also expect demand from vegetable oil buyers like China toincrease. The economic growth is there. We have to be ready to cater tothat demand," he added.On sugar, Apriyantono said Indonesia, Southeast Asia's largest buyer ofthe sweetener, would substantially reduce imports in 2006 as domesticproduction next year would likely rise 5-10 percent from this year's 2.2million tonnes."Our domestic sugar demand will remain strong but a part of that demandwill be met by imports," he added.Apriyantono added the government had succeeded in bringing an outbreakof bird flu, which has devasted the poultry industry across Asia sincelast year, under control."We are taking adequate steps to ensure that we don't have it again. Weare doing our best as we can," he said. "It's a good thing to know that wedon't have a case in the past one month."A man and his two young daughters died in Indonesia from the H5N1strain in July but health experts said they could not pinpoint the sourceof the infection.