RPT-UPDATE 1-Wilmar eyes Indonesia consumer flour market in 2012-sources

* Will use Malaysia's PPB flour mills in Indonesia

* Will put Wilmar in competition with Indonesia's Indofood

* PPB plans to double Indonesian capacity-media

* Trade minister worries about wheat supply (Adds details, trade minister comment, background)

By Fitri Wulandari and Harry Suhartono

SINGAPORE/JAKARTA, March 3 (Reuters) - Wilmar International , the world's largest listed palm oil company, plans to enter Indonesia's consumer flour market, possibly in 2012, which will intensify competition in the country, sources familiar with the plan told Reuters.

The plan would put Wilmar, owned by the family of Malaysian tycoon Robert Kuok, in competition with Bogasari Flour Mills, in a market which is seeing increasing number of new flour mills and comes amid renewed global fears over rising wheat and food prices due to tight supply.

Wilmar declined to comment, but had said last year its extensive distribution network in edible oil business would be beneficial for developing a flour milling business.

Indonesia, Asia's second biggest wheat importer, currently has 14 flour mills that can process 7 million tonnes of wheat a year, up from four mills 10 years ago, data from the Indonesian Wheat Flour Mills Association show, and the rising number of mills could help ease its concerns over food security.

"We need to be watchful. Supply could be an issue given what happened in Australia and in Ukraine, the big producers. They seem to be, until 2012, to have issues with production," Indonesia's trade minister Mari Pangestu told Reuters in an interview.

"I think our wheat flour producers are certainly (looking for new sources). They look at Canada, the U.S. and Argentina. But in terms of cost, Australia is still closer," she added.

The country relies entirely on imports for its wheat, and consumption is expected to rise by 5-10 percent to around 5.2 million tons this year, local milling officials say.

Wilmar might use flour mills owned by the unit of Malaysia's PPB Group in Indonesia and use its own distribution network to sell the flour, said one of the sources, who declined to be named because of the sensitivity of the plan.

Wilmar has been trying to diversify business from its main stronghold in China, which contributed to more than half its annual revenue. It paid $1.5 billion last year to acquire Australia's Sucrogen, the world's fifth-largest sugar refiner.

FFM Berhad, a unit of Malaysia's PPB Group , has a milling capacity of around 1,000 tonnes per day and the group plans to spend $46 million to double its flour production capacity in Indonesia and Malaysia over the next two years, state news agency Bernama said. .

Shares of Wilmar, which recently bought a 20 percent stake in FFM, jumped 3 percent early on Wednesday, helped by higher palm oil futures, traders said, before closing 1.8 percent higher.

Bogasari, a unit of instant noodle maker Indofood Sukses Makmur , owned by Indonesia's Salim family, has been dominating Indonesia's flour market and has a total flour milling capacity of 15,000 tonnes per day.

FOOD FEARS

Indonesia in January suspended import duties on wheat, rice and soybeans as part of efforts to fight food inflation, a move which might have worked, as raw food prices fell 0.3 percent in February from the previous month -- the first in four years -- leading overall inflation to ease, data showed.

Raw food prices were still up 14.8 percent last month on a year ago, and despite easing worries over supplies and prices of the main staple rice, government and business officials in the world's fourth most populous country of 240 million people, still fret over rising wheat and other food prices.

Reflecting such worries, the United Nations' Food and Agriculture Organisation (FAO), said in the face of growing demand and a drop in world cereal production last year, global cereal stocks in 2011 are expected to fall sharply because of a decline in inventories of wheat and coarse grains.

Global food prices hit a record high in February, the FAO said, warning that oil price spikes induced by Middle East unrest would impact already volatile cereal markets. (Editing by Ramthan Hussain)