TOKYO, Aug 23 (Reuters) - Japan's decision to require labels on genetically modified (GM) food may slow expansion of GM crop output in the U.S., its biggest supplier, as Japanese food makers have begun seeking non-GM crops to avoid labelling, traders say.

U.S. farmers are becoming cautious about increasing acreage planted with genetically altered soybeans, amid rising demand for non-GM crops from Europe and Japan, where consumers are concerned about possible health hazards of GM foods, they said.

"U.S. farmers are pondering whether they should continue to expand planting of GM soybeans, as they understand they cannot ignore the needs of food companies in importing countries," said a soybean trader at a major Japanese trading house.

"I don't expect the ratio of GM soybeans to total soybean planted acreage in the U.S. to rise significantly from the current level (of around 50 percent for this year) if demand from food processors for non-GM crops grows further," he said.

Japan imported 2.45 million tonnes of soybeans in the first half of 1999, of which imports from the U.S. accounted for 2.11 tonnes or 86.2 percent. In the same period Japan imported 9.13 million tonnes of corn, of which imports from the U.S. accounted for 8.82 million tonnes or 96.5 percent.

Hironori Kijima, director-general of the Japan Tofu Association, expects GM labelling will create annual demand for 300,000 tonnes of non-GM soybeans from Japanese soybean curd makers.

"We want to avoid the GM label as it could hurt the image of our products. We plan to switch to non-GM soybeans," Kijima said. "We will be asked by U.S. farmers and distributors to pay high premiums for non-GM soybeans. But we have no other option than buying from the U.S., as there are no other comparative suppliers (in terms of quantity and quality)," he said.

Nippon Flour Mills Co Ltd, Japan's second-largest flour miller, is considering shifting to non-GM corn in its production of corn grits. A company spokesman said it was also considering replacing corn starch with wheat starch in its flour products.

For corn grits production, Nippon Flour buys 30,000 to 36,000 tonnes of corn per year, mostly from the United States. It also buys 1,500 to 2,000 tonnes of corn starch a year.

Japanese corn snack maker Tohato Inc, which is now completely dependent on U.S. corn, plans to switch to corn grits made in France in order to avoid the GM label.

A Tohato spokesman declined to say how much corn the company uses for corn snack production. But one trader at a Japanese trading house estimates Tohato needs 200 tonnes of corn a year.

"That amount is a negligible portion of Japan's total imports of U.S.. corn," the trader said. "But the move (to other foreign suppliers) will be problematic for the U.S. government, which backs U.S. biotechnology companies' strategy to expand GM crop output."

Traders said it was too early to say the shift to non-GM crops was a trend within the Japanese food industry.

"Some food makers are beginning to shift to non-GM crops. But others are cautious about shifting due to uncertainty about willing consumers will be to pay extra for non-GM foods, if it's unavoidable for them to pass on increased procurement costs (to consumers) in higher prices," said a grain trade house official. Traders estimate purchasing costs for U.S. corn by Japanese end-users could rise as much as 50 percent if they seek non-GM crops. As for U.S. soybeans, purchasing costs by Japanese users are expected to rise by about 30 percent.

Under its food safety guidelines, Japan has approved 22 varieties of GM crops for import and sale, including soybeans, corn, rapeseed, potatoes, cotton and tomatoes. The government will impose labelling requirements on these crops and food products that use them from April 2001, to allow consumers to make an informed choice.

Food products in which DNA or protein resulting from gene alteration cannot be detected using current technologies, such as vegetable oil, are exempt from the labelling requirement.

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