* Sudan welcomes move, says can increase competitiveness
* Sudan hopes to aggressively expand wheat sector
By Opheera McDoom
KHARTOUM, Oct 21 (Reuters) - The United States has relaxed sanctions on Sudan to exempt farm equipment, a move seen as part of a wider scheme of carrots and sticks before a sensitive referendum that could split Africa's largest country.
Sudan, under U.S. economic sanctions since 1997, welcomed the U.S. move saying it could help develop an agricultural sector on which 80 percent of the population depends for livelihoods. Sudan aims to expand agriculture and will host a food security conference of 57 Islamic countries next week.
"Specific licenses may be issued on a case-by-case basis authorising the commercial exportation or re-exportation of U.S.- origin agricultural equipment and services to ... Sudan," the U.S. Office of Foreign Assets Control said in a statement issued on its web site on Wednesday.
"The purpose of this new licensing policy is to benefit the Sudanese people by enhancing local food production and strengthening the agricultural sector," it added.
A peace process that ended decades of civil war and devastated Sudan's economy will wind up on Jan. 9 when a referendum on secession by the south will be held, something many expect will create the world's newest country.
Most of Sudan's 470,000 barrels per day of oil, the mainstay of its economy, lies south of the north-south boundary although the infrastructure is in the north. Khartoum's government has been boosting non-oil revenues ahead of the south Sudan vote.
U.S. Secretary of State Hillary Clinton has said the international community must sweeten the divorce for Khartoum to prevent antagonism that could push the two sides back to war.
Senior Agriculture Ministry official Abdel Latif Ijaimi said on Thursday that the U.S. gesture would open the door to new agricultural technologies and equipment which would make Sudan more competitive edge in global markets.
"We welcome this and it is part of a move to open more cooperation and will allow us to enter (global) markets and improve in terms of quality and prices," Ijaimi said.
WHEAT EXPANSION NEEDS INVESTMENT
Sudan's state minister for agriculture, Mohamed Ali Alloubi, said wheat production was expected to rise this year to 560,000 tonnes of wheat, about 42 percent of the country's consumption of more than 2 million tonnes.
Last year Sudan produced just 16 percent of its total need.
"Two years from now, we can stop wheat imports and begin exports," Alloubi told Reuters.
"We are expecting after two years to be producing more than 3 million tonnes of wheat with large-scale projects," he said, planned in the Northern, River Nile and Gezira states.
"This will depend on investment from the private sector from Sudanese and foreign companies," he said, giving no figures.
Sudan shares a northern border with Egypt, the world's largest wheat importer. The ministry's Ijaimi said Saudi Arabia, phasing out wheat production by 2016 because of water shortages, was considering Sudan as a future source of wheat.
Sudan also hopes the Organisation of the Islamic Conference meeting on food security in Khartoum next week will foster investment in its farm sector.
"We have 48 million feddans (19.3 million hectares or 47.7 million acres) of arable land and only 15-17 percent is used," said Alloubi, adding Sudan also enjoyed a large share of Nile water. The Blue Nile and White Nile converge in Khartoum to flow north to Egypt.
(Editing by Mark Heinrich)
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