Ethanol is a combustible fuel that can be blended with conventional fuel and is made of sugar beets or cereals, while biodiesel is made mainly out of rapeseed.

"We were a bit disappointed by this distribution because we were expecting a 50/50 division of the 800,000-tonne quota," said Alain Jeanroy, who coordinates French ethanol producers, made up pf wheat, maize and sugar beet growers.

France's new biofuel quota comes within the framework of a target set by the European Commission that fuels should contain 5.75 percent of biofuels by 2010 in a bid to reduce carbon dioxide emissions and cut the bloc's dependence on fuel imports.

France has already admitted it was two years behind a first target of two percent set for 2005 but still hoped to meet the 2010 deadline. To do so, the farm ministry said there would be a second increase in volumes launched after 2007.

"We hope to have much more after 2007. But we need to know soon, so we can make our investments," he told Reuters.

QUADRUPLE OUTPUT

In 2004, France produced 100,000 tonnes of ethanol -- or 0.7 percent of total petrol consumption -- of which 70 percent was made from sugar beet and 30 percent from grain. This accounted for 10,000 hectares of beets and 15,000 hectares of grains.

Output is set to quadruple in the next three years, starting with an additonal 100,000 tonnes in 2005.

But for the remaining 220,000 tonnes to be produced by end-2007, producers could have to build new plants, he said.

French maize growers said in December they wanted to build a processing plant in southwestern France, with help from Spanish industrial group Abengoa.

But Jeanroy said it was too early to say where the new plants would be and what commodity they would process, cereals or beets. Projects are set to be chosen this spring.

SOUTH AMERICAN IMPORTS OMINOUS

But France's ethanol outlook could be clouded by the potential for huge EU imports from South America.

As part of trade negotiations with South America's Mercosur trade bloc, the EU has proposed importing one billion litres of ethanol a year in exchange for a better market access.

The two blocs failed to reach a deal in October but are due to resume talks in April.

"We haven't even started, and the EU is already giving the market away," Jeanroy said, suggesting limits to ethanol imports linked to the level of EU production.

EU ethanol demand is set to reach 12 million tonnes in 2010 if the EU target is met, he said. Imports of one billion litres of ethanol would cover around 10 percent of those needs.