A palm oil nursery is pictured at Kasongan regency in Indonesia's Central Kalimantan province in this file photo from October 1, 2007. Ethiopia said on Monday it planned to produce biofuels to cut high oil import bills, but says the strategy won't hit food production. REUTERS/Hardi Baktiantoro

ADDIS ABABA (Reuters) - Ethiopia said on Monday it planned to produce biofuels to cut high oil import bills, but dismissed fears the strategy could hit food production in a country suffering a severe drought.

Some 4.5 million Ethiopians need emergency food aid due to failed rains and high food prices, reviving grim memories of the country’s 1984-1985 famine, which killed more than 1 million.

But the government also faces an annual fuel bill of up to $900 million, and aims to reduce that over time using biofuels.

“There is no shortage of agriculture land in Ethiopia for food production,” Melis Teka, coordinator of biofuel development in the Ministry of Mines and Energy, told Reuters.

“We have up to 23 million hectares which could be developed both for crops and biofuel. Biofuel plants are being developed on arid and barren land not suitable for food production.”

The government says it could make one billion liters of ethanol a year from four state-run sugar estates, and has also issued 37 licences to private investors to set up biofuels plants. The country also plans to produce biofuels from jatropha, castor beans and oil palm plantations.

“As the country accelerates its economic development, the demand for petroleum is anticipated to increase,” Melis said.

“The development of biofuel is expected to be an alternative source of energy to meet the anticipated demand.”

(Reporting by Tsegaye Tadesse; Editing by Daniel Wallis)