British Sugar to expand output as EU quotas end, stocks fall

* British Sugar had curbed production due to high stocks

* Expansion potential limited as no new factory planned

By Nigel Hunt

BIRMINGHAM, England, Feb 22 (Reuters) - Sugar production in Britain will expand significantly during the 2017/18 season, boosted by the abolition of European Union quotas and a decline in stocks, Paul Kenward, managing director of British Sugar, said on Wednesday.

The drilling of the next sugar beet crop is due to start next month with the area seen about 30 percent higher, Kenward told Reuters on the sidelines of the National Farmers Union's annual conference.

British Sugar, which produces sugar from domestically produced beet, has been allowed to sell only 1.054 million tonnes of sugar a year under EU quota restrictions that are to be lifted for next season.

"I can now expand to the capacity of my factories," Kenward said, adding that current capacity of about 1.4 million tonnes could be stretched to 1.5 million tonnes.

However, Kenward said that the company would be asking farmers to grow enough beet for about 1.25 million tonnes, assuming average yields, to ensure it can process all the crop if yields are significantly higher than normal.

The last time this occurred was in the 2014/15 season, when production was about 400,000 tonnes higher than expected. The company was unable to sell the extra sugar immediately and had to cut the planted area for the following two seasons while excess stocks were drawn down.

"If I had the crop again I would have the opportunity to sell it in the UK, in the EU and in world markets - and that is a big change. To me that is a very positive change," he said.

British Sugar, a unit of Associated British Foods (LSE: ABF.L - news) , has about a 55-60 percent share of a UK market that totals about 2 million tonnes, Kenward said.

Competitors include Tate & Lyle Sugars, a unit of American Sugar Refining, which refines imported raw cane sugar in the East London suburb of Silvertown.

British Sugar has four factories, which are supplied with beet by 3,500 farmers in East Anglia and the East Midlands.

Kenward said British Sugar would push for reciprocity on any import tariffs if it loses free access to the EU market after Britain leaves the bloc, warning that Britain should be wary of opening its doors to sugar from around the world.

"People should proceed with care and recognise that sugar is a distorted market with a lot of state support in certain places," Kenward said. (Editing by David Goodman)