"From preliminary figures in 2007 it looks like Indonesia has already overtaken us in terms of production," Plantation and Commodities Minister Peter Chin told reporters.

Chin said Malaysia was still the world's top exporter but that Indonesia was "very close behind" and would probably claim top status in 2008.

"We do not aspire to be number one all the time," he said on the sidelines of a conference on sustainable palm oil production, in Sabah state on Malaysia's Borneo Island.

"Now Indonesia is coming up strongly, we acknowledge that they have more land, more estates and therefore they should logically be a bigger producer and bigger exporter. We will accept that," he said.

Malaysia produced 15.82 million tonnes of crude palm oil last year, and earned 45.2 billion ringgit (14.1 billion dollars) in export revenue.

Palm oil plantations account for 1.2 million hectares (2.97 million acres) of Malaysia's 4.2 million hectares of land allocated for agriculture. Some 30 percent of the country's palm oil is in Sabah.

Malaysia and Indonesia together produce 85 percent of the world's palm oil which is enjoying a boom on the back of strong global demand and tight supply.

Chin said with limited opportunities to expand agricultural land, palm oil producers will focus on increasing yield from existing crops by efficient growing techniques and replanting with better seedlings.

As Malaysia campaigns against claims that palm oil is destroying valuable habitat and endangering orangutans, he said Malaysia no longer cleared virgin tropical rainforests for agriculture.

However, Darrel Webber from the World Wildlife Fund in Malaysia said that while virgin forests were spared, plantation owners clear valuable secondary forests.

"They don't convert primary forests but they do convert secondary forests into agricultural land, which also has high conservation value," he told AFP. "Most orangutans are found in secondary forests in Malaysia."

Webber said that since 1980 more than half of the habitat of the endangered orangutan had been transformed into palm oil plantations.

He said the current high prices of palm oil would accelerate oil palm development, further fragmenting forest land and habitats to some of the world's most rare plant and animal species.

The Sabah-based environmentalist said strict certification and regulatory bodies need to ensure that palm oil players, including the smallholders, adhered to regulations and did environmental studies before clearing land to grow crops.

"It is absolutely possible to have sustainable palm oil production but the big question is if they, the industry as a whole, want to do it," he said.

Malaysian Palm Oil Council chairman Lee Oi Hian said the multi-billion dollar industry will have to take up the challenge of ensuring sustainable production to repair its image as a destructive force to the environment.

"To say that we are perfect, we are not. We must make our people aware in all levels of industry and see ourselves as responsible stewards of the environment," said Lee, who is also chairman of palm oil giant Kuala Lumpur Kepong Bhd.

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