* Investment will boost its potash output by about 50 pct

* Expansion to be quicker, cheaper than rival greenfield projects

* Semi-annual dividend payout quadrupled to 22.5 cents/shr (Adds CEO comments, dividend increase. In U.S. dollars)

Dec 14 (Reuters) - Agrium's board has signed off on a long-planned $1.5 billion project to expand its potash production capacity by about 50 percent, aiming at capitalizing demand for the crop nutrient.

Calgary, Alberta-based Agrium said on Wednesday the expansion of its operations at Vanscoy in the potash-rich western Canadian province of Saskatchewan will cost less and take less time than building a potash mine from scratch.

"Our brownfield potash expansion will ultimately be much quicker to bring on, and significantly less expensive to develop, than any greenfield project that is under consideration," said Chief Executive Mike Wilson in a statement.

Agrium, a fertilizer producer as well as the largest farm products retailer in North America, also said it is quadrupling its semi-annual dividend to 22.5 cents per share from 5.5 cents a share.

"The increase in our dividend is a result of the continued growth in stable earnings from our retail business and the strength in our wholesale earnings profile and outlook," said Wilson.

The company said the mine expansion will boost its potash output capacity to about 3 million tonnes a year, at a cost of about $1,500 a tonne.

In terms of potash production volumes, Agrium is by far the smallest of the three potash producers in Saskatchewan. Its much larger rivals, Potash Corp and Mosaic already have huge expansions underway.

Within the coming decade the three companies, which market overseas potash sales through a single joint venture, will account for over 36 million tonnes of potash production capacity - equal to more than 50 percent of the world's current production capacity.

In addition, German potash miner K+S and global mining giant BHP Billiton are investing billions in Saskatchewan to build their own potash mines in the province. BHP's proposed Jansen project is expected to become the world's largest potash mine if the Anglo-Australian mining giant pushes forward with plans to develop the asset.

Potash, the common name for potassium chloride, a crop nutrient used across the globe, is only mined in a handful of countries. Canada, Belarus and Russia account for the vast majority of the world's production and exports.

Growing food grain demand from emerging economies like China, India and Brazil has put pressure on farmers to boost grain supplies and spurred growing demand for potash and other macro nutrients.

Strong grain prices and rising potash prices prompted BHP to make a $39 billion bid for Potash Corp in 2010. The hostile offer failed after the Canadian government stepped in to block the takeover.

Agrium said engineering and construction work on the expansion will be conducted by a joint venture between SNC Lavalin and PCL Industrial Management Inc.

The majority of the project construction is expected to take place in 2012 and 2013, with completion projected by the second half of 2014.

Agrium's U.S.-listed shares rose 12 cents to $65.29 in early trading on the New York Stock Exchange on Wednesday, while its Toronto-listed shares rose 41 Canadian cents to C$67.90. (Reporting by Euan Rocha in Toronto and Gowri Jayakumar in Bangalore)