"We will consider incentives for the palm oil sector and of course the environment will be our priority," he told Reuters in an interview. "We will have to boost output. Not only do we expect increased demand for food but we also expect a huge market for bio-energy to open up."

He did not specify what incentives the government was considering for the sector.

Apriyantono said Indonesia, the second-largest producer and exporter of palm oil, after Malaysia, would aim to boost the crop area under palm plantations to 8 million hectares in the next three years from the current 5 million.

Indonesia produced 12 million tonnes crude palm oil in 2004. Area under palm oil in Indonesia has doubled since 1999.

Plans by Indonesia to boost output come at a time when environmentalists are blaming the latest forest fires, and the haze that followed, on palm plantations. Critics say workers light the fires to clear land, an illegal practice they say has been largely overlooked by the government.

In addition, Indonesia is considering setting up the world's biggest palm plantation -- covering an area of 1.8 million hectares -- in Kalimantan, along the border with Malaysia.

Bio-fuels are taking on renewed global importance as countries seek to cut hazardous emissions. Palm oil's emergence in the market comes decades after the introduction of ethanol, made from sugarcane, and other additives.

FOOD OUTLOOK

For food, Apriyantono said Indonesia is also witnessing increased demand for its palm oil from customers such as India, which imposes a relatively lower import duty on crude palm oil, giving it an edge over refined oil sales by Malaysia.

"We also expect demand from vegetable oil buyers like China to increase. The economic growth is there. We have to be ready to cater to that demand," he added.

On sugar, Apriyantono said Indonesia, Southeast Asia's largest buyer of the sweetener, would substantially reduce imports in 2006 as domestic production next year would likely rise 5-10 percent from this year's 2.2 million tonnes.

"Our domestic sugar demand will remain strong but a part of that demand will be met by imports," he added.

Apriyantono added the government had succeeded in bringing an outbreak of bird flu, which has devasted the poultry industry across Asia since last year, under control.

"We are taking adequate steps to ensure that we don't have it again. We are doing our best as we can," he said. "It's a good thing to know that we don't have a case in the past one month."

A man and his two young daughters died in Indonesia from the H5N1 strain in July but health experts said they could not pinpoint the source of the infection.

Apriyantono added the government was still studying the possibility of approving planting of genetically modified crops but had not yet reached a decision.