BANGKOK, September 5 (Reuters) – Thai sugar millers are expanding capacity to meet demand as world prices soar, industry officials and traders said on Friday, expecting farmers to grow more cane in response.

''The expansion is part of long-term plans as millers expect sugar prices to rise further because supply is likely to fall short of demand over the next few years,'' said a senior official at the Thai Sugar Millers Corporation Limited, which groups all 47 sugar millers in the country

On Tuesday the government approved plans by five sugar millers to expand their crushing capacity by around 7,000 tonnes of cane each per year.

Taking that into account, Thailand's annual crushing capacity will rise to more than 84 million tonnes of cane.

Traders said the higher capacity and soaring world sugar prices should mean farmers grow more cane in the 2010/11 season. The crushing season usually starts in November and runs until the end of April.

Thailand is Asia's biggest sugar exporter.

In the current 2009/10 crop, it is forecast to produce around 7.6 million tonnes of sugar from around 72-76 million tonnes of cane, according to the Office of Cane and Sugar Board (OCSB).

''World sugar prices at around 20 cents per lb are fair and should encourage farmers to grow more cane in the next crop,'' said Prakit Pradipasen, chairman of the Thai Sugar Millers Corporation.

New York raw sugar futures, which set the global trend, hit a 28-1/2-year high of 24.85 cents per lb on Wednesday on fears about a fall in supply. Demand was rising as India, the world's biggest sugar consumer, was expected to import more sugar to offset falls in domestic production caused by a weak monsoon.

The key October raw sugar contract fell 0.54 cent or 2.3 percent to finish at 23.14 cents per lb on Thursday.

Because of the strong demand, Thailand aimed to export a record 5.7 million tonnes in 2010, according to the OCSB.

It exported 4.9 million tonnes in 2008 and aims to sell around 5 million tons this year, which would set a record.

The London-based International Sugar Organization (ISO) has forecast a global sugar deficit of 8.4 million tons in 2009/10.