"I'm optimistic we will see demand increase and the world more in balance, than we have seen in the late 1990s," chief executive Ian White said of the world's oversupply of 40 million tonnes of sugar.

White was addressing the Queensland Farmers Federation annual conference.

"There will be some stability in the market in the next two to three years... we could get back to growth rates approaching 1.5 to two percent a year."

"We do expect to see a recovery in sugar production and that will be led by a recovery in prices. We are forecasting some form of recovery, it will be a response to world prices and our view is there will be more stable world prices in the next few years and that will be the catalyst for the recovery."

White said China was expected to take more than one million tonnes of sugar a year while Middle East was a growing market with demand expected to grow by an extra two million tonnes in the next five years.

"The expectations are that China will come to the market for reasonable amount of product and that will continue on ... people are talking somewhere over one million tonnes," he said.

He did not predict when China would come to the market.

"There are opportunities for demand increases which will suck up some of these production excesses. There are signs of movement in the trade area and we do have to look at the world not being in massive oversupply."

However White said further restructuring of the fragmented Australian sugar industry was needed with an emphasis on marketing, diversification and consolidation.

"In terms of lifting the game, there's a lot to be done in terms of marketing," he said.

"We've got to de-commoditise raw sugar to take it out of the cycles and then we've got to look at different qualities of sugar and tailor them to different customers and create brands specifically for customers."

Diversification into co-generation, organic sugar and ethanol production would also boost mill revenues, while consolidation of Queensland's 6,500 mostly family-owned farms was inevitable, he said.

White also said the eventual ownership of milling assets owned by CSR Ltd , representing 40 percent of Australia's milling capacity, would be a key to the future direction of the industry.