* Indonesia now unlikely to hit palm output target of 40 mln T -industry
* Expansion not the only way to boost production, agriculture ministry says
By Yayat Supriatna
JAKARTA, Oct 18 (Reuters) - An Indonesian rule limiting plantation areas to just 100,000 hectares for new palm oil firms threatens an ambitious output goal of 40 million tonnes by 2020 set by the world's top producer of the edible oil, an industry group said on Friday.
Analysts say the new rule aims to protect small plantation firms from bigger predators, and will close a loophole allowing major players to set up firms in different provinces.
The new law exempts state-owned firms, co-operatives and listed firms in which small individual investors make up a majority stake, and will not affect companies that already have plantation permits.
"This new regulation is purely to curb oil palm plantation development in Indonesia," said Timbas Prasad Ginting, an official of industry body the Indonesian Palm Oil Association (GAPKI). "Perhaps this government step is merely to satisfy foreign pressures."
Indonesia is a key player in the battle against climate change and faces international pressure to halt rampant deforestation and destruction of carbon-rich peatlands.
Forests in the archipelago are being cut for an expanding swathe of palm oil, mining and pulp and paper industries, which green groups blame for hastening climate change and destroying wildlife.
"The palm oil plantation restriction will slow annual production growth so that we will not achieve our target of 40 million tonnes in 2020," Ginting told Reuters.
Indonesia, home to the world's third-largest expanse of tropical forests, should not rely solely on expansion to boost yields, said Deputy Agriculture Minister Rusman Heriawan, adding that better farming techniques could also push up output.
The new law will require new palm plantation firms to offer a fifth of their land for development by local farmers where possible, and gradually divest 30 percent of new palm oil mills to co-operatives within 15 years of operation, Heriawan said.
He gave no details of whether the new rule would affect plantations with land licenses about to expire or be renewed, and how the law would affect existing firms seeking to expand.
There are doubts as to whether domestic farmers have the funds or access to finance, to buy stakes in new palm oil ventures and plantations, industry officials added.
Output of palm oil, used as an ingredient in food items such as biscuits and ice cream, as well as biofuel, is expected to rise 5 percent this year in the Southeast Asian nation, to range between 27 million and 28 million tonnes.
Palm oil estates sprawl across more than 8 million hectares of Indonesian land, industry officials estimate.
Reporting by Yayat Supriatna; Writing by Michael Taylor; Editing by Clarence Fernandez