* World rice prices to stay high

* Malaysia and Indonesia move to safeguard supplies

* WFP to cut aid to Ethiopia

By Svetlana Kovalyova

MILAN, May 12 (Reuters) - World rice production will hit a record high this year but increasing demand and restrictions on exports will keep prices high, the United Nations Food and Agriculture Organisation said on Monday.

Global prices of staple foods have risen more than 40 percent in the last year causing shortages, hoarding and riots in some developing countries.

Rice prices have soared this year, and with world stocks at their lowest since the early 1980s governments and importers have scrambled to stock up amid fears of shortages.

"World paddy production in 2008 could grow by about 2.3 percent, reaching a new record level of 666 million tonnes, according to our preliminary forecasts," FAO rice expert Concepcion Calpe said in a statement.

"For the first time, paddy production in Asia may surpass the 600 million tonne benchmark this year, amounting to 605 million tonnes," Calpe said.

In Africa, rice output is forecast to grow 3.6 percent to 23.2 million tonnes in 2008, while output in Latin America and the Caribbean is seen rising 7.4 percent to 26.2 million tonnes, the FAO said.

The current forecast may worsen due to the cyclone which hit Myanmar when rice farmers were harvesting their dry season crop accounting for 20 percent of annual production, Calpe said.

Rice prices have risen by 76 percent between December 2007 and April 2008, according to the FAO, and they were expected to remain relatively high because stocks held by exporters were expected to be reduced.

"Prices are expected to remain extremely firm, at least until the third quarter of 2008, unless restrictions on exports are eased in the coming months," Calpe said.

Only Thailand, Pakistan and the United States, among leading exporters, are currently exporting rice without constraints.

Malaysia and Indonesia on Monday announced plans to safeguard rice supplies.

Malaysian Prime Minister Abdullah Ahmad Badawi imposed controls on prices for higher grades of rice and, in a move intended to encourage farmers to produce more, raised the minimum guaranteed price for locally produced rice.

Indonesia said it planned to set aside 10,000 square kilometres (3,800 sq miles) of land, roughly 12 times the size of New York City, to grow more rice amid a regional scramble to avoid shortages.

In Ethiopia, lack of funds forced the U.N. World Food Programme (WFP) to cut by more than half the number of districts it serves in drought-hit regions of the country.

Announcing an appeal for $76.4 million in aid, WFP said shortages would prevent it from providing food supplements to malnourished mothers and children. (Editing by Giles Elgood)

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