UPDATE 2-Philippines posts fastest Q1 yr/yr farm growth in 7 yrs

* Farm output up 4.1 pct yr/yr vs 3 pct drop year ago

* Unmilled rice up 15.6 pct, corn up 19.5 pct

* 2011 farm output seen up 4.5-5.5 pct (Adds economists' comments)

By Erik dela Cruz

MANILA, May 10 (Reuters) - Philippine farm output expanded 4.1 percent in the first three months from a year ago, the fastest first-quarter growth since 2004, with better rains likely to boost rice harvests for the rest of the year and shed the need for more imports.

Farm output this year is estimated to grow between 4.5 and 5.5 percent, the highest in at least four years, after contracting 0.12 percent in 2010, Agriculture Secretary Proceso Alcala said on Tuesday.

"We project even higher (farm) growth for the next two quarters that will put us on target (for the year)," he told a news briefing.

Bumper rice production, estimated to reach a record high this year, bodes well for the government's fiscal performance as it means less pressure on the state grain agency to import more of the national staple, and ease the strain of fuel-driven inflation.

"Recovery in rice production should lower the government's fiscal burden through lower imports," said Radhika Rao, economist at Forecast Pte in Singapore.

Unmilled rice output rose 15.6 percent in the March quarter from a year earlier to 4.037 million tonnes, more than half the first-half crop forecast, and corn production jumped 19.5 percent to 1.914 million tonnes.

With improved rice output, the Southeast Asian country, the world's largest rice buyer in recent years, has slashed imports for 2011 to just about a third of last year's record volume of 2.45 million tonnes. It has also given the private sector a higher share of rice imports this year to ease its financial burden.

The Philippines' diminished import needs have kept rice prices in the global market largely under control amid a food- and oil-price driven inflation that has caused worries for policymakers around the region.

Thailand's benchmark 100 percent B grade white rice RI-THWHB-P1 was steady at $500 per tonne this week. Exporters said prices were unlikely to fall sharply despite the start of a bumper second crop harvest due to political reasons. [ID:nL3E7G41D1]

SUPPORTIVE OF GDP GROWTH

Farm output, making up a fifth of the Philippines' GDP, is expected to support overall economic growth forecast to hit 7-8 percent this year after a 7.3 percent expansion in 2010, the highest in more than three decades. Economic growth data for the March quarter will be released on May 30.

"Improvement in Q1 farm output on better crop harvests and higher support prices for the staple is likely to be positive for first quarter's GDP growth," Rao said.

Jonathan Ravelas, chief market strategist at Banco de Oro Unibank in Manila, said he expected GDP growth in the first quarter to be closer to 6 percent.

"I think Q1 GDP growth will remain positive although not as strong last year, which was supported by extraordinary spending before the May elections and after the strong typhoons in late 2009," he said.

The government has forecast output of rice, the national staple, at 7.6 million tonnes in January to June. The full-year forecast is for a record rice crop of 17.46 million tonnes, more than 10 percent above last year's harvest.

"We are on track with our goal of becoming self sufficient in rice by 2013," Alcala said.

Ravelas said Philippine authorities should remain focused on ensuring food security before considering exporting rice if and when it achieves its self-sufficiency ambition.

Alcala said the crops sub-sector, which accounted for 53 percent of farm output, grew 8.2 percent from a year earlier. Besides rice and corn, sugarcane output grew 26.7 percent.

"We expect these crops to continue to drive still higher double-digit growth in the next three quarters, with peaks in the second and third quarters," he said.

Livestock production grew 0.6 percent, and poultry output was up 3.9 percent. Fisheries output declined by 3.5 percent.

Alcala expected minimal crop damage from Tropical Storm Aere, which dumped rains in the coconut-producing central Bicol region and in some rice-producing provinces in the northern Philippines over the past three days. (Editing by Rosemarie Francisco and Ramthan Hussain)