Senators in France, where a left-wing government is hiking tax generally to help slash a bloated debt, have proposed a 300 percent tax hike on palm oil on the grounds that its production harms the environment and its consumption fuels obesity.

Frederic Thil, French director for Ferrero, the Italian firm that makes the sugary, chocolate-colored paste, sounded a defiant note in Le Parisien daily.

"The arguments are unfair and the repercussions would be catastrophic," he told the newspaper.

More than 100 million jars of Nutella were sold in France alone in 2008, according to Ferrero, whose website says the recipe sold in large quantities across the Western world was invented in the backroom of an Italian pastry shop in 1944.

The main ingredients are sugar, milk powder, hazelnuts, cocoa, emulsifier, flavoring and palm oil, on which a tax of almost 100 euros per metric tonne is levied in France at the moment.

That tax would rise to 400 euros a tonne if the proposal floated by a Senate committee earlier this month secures majority backing in the Senate and in the lower house of parliament, the National Assembly.

France, which is keen to find other funding sources for a generous healthcare system in cash-strapped times, has already raised tax on sugary drinks and recently hatched plans to hike tax on beer to help plug the hole in public welfare finances.

Thil said the maker of Nutella, popular in many countries as a breakfast fare smeared onto slices of bread, would do all it could to limit the hit from any tax rise for consumers.

Palm oil, also extensively used in margarine, biscuits and crisps, makes up about 20 percent of the Nutella mix. The 300 percent tax rise, if passed on, would raise the cost of a 1-kilo jar or the spread by 0.06 euros, according to ASEF, an association of doctors that backs the tax hike proposal.

The other argument made for a tax increase is that it will encourage a shift away from intensive production methods that have prompted destruction of forests in countries such as Malaysia, a major exporter of palm oil.

(Reporting By Brian Love; Editing by Toby Chopra)

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