Paraguay's record soy crop to boost investments

President of the Paraguayan Chamber of Cereal and Oilseed Exporters Ulrich Bauer speaks during an interview for the Reuters' Latin America Investment Summit in Asuncion May 6, 2010.

ASUNCION (Reuters) - Paraguay's farmers hope this season's record harvest will raise $2.5 billion, helping to revive investment aimed at boosting yields and clear debts carried over from last year's drought-hit campaign.

The poor, landlocked country is the world's No. 4 soybean exporter and growers expect to harvest a record 7.4 million tonnes of 2009/10 soy, said Ulrich Bauer, president of the Paraguayan Chamber of Cereal and Oilseed Exporters.

Soybeans are the nation's biggest export earner and the bumper harvest should stimulate a wider economic expansion of 6 percent this year, reversing a sharp recession in 2009 and increasing dollar flows into the small financial system.

"This is a good year, although what happened in 2009 is going to weigh on 2010's economy," Bauer told the Reuters Latin America Investment Summit in Asuncion.

"Even with this super harvest, we're not going to be able to get back to zero. Farmers are carrying big debts and they won't be able to clear them until at least 2011," he added.

This year's record crop is also raising concerns among producers that leftist President Fernando Lugo could be encouraged to hike taxes on the sector, something he threatened to do soon after taking office two years ago.

Paraguayan soy exports, which go mainly to Argentina -- where they are crushed into soyoil and pellets -- and to the European Union, are dominated by giant multinationals Cargill CARG.UL and U.S.-based Archer Daniels Midland Co (ADM.N).

IMPROVING YIELDS

Paraguay's soy production remains modest when compared with that of neighboring and Argentina, the world's No. 2 and No. 3 exporters, respectively, and its previous record crop was 2007/08's 6.8 million tonnes.

Production sank by more than 40 percent last year, saddling farmers with debts of some $600 million and battering gross domestic product, which shrank 3.8 percent.

"Last year's harvest was the biggest disaster I've seen in 30 years of soy farming," said Bauer, who runs a grains elevator company.

Growers finished bringing in the 2009/10 crop late last month and the average yield was a record 2.8 tonnes per hectare, beating the previous high of 2.6 tonnes per hectare.

Paraguay's soy area has doubled over the past decade, but farmers are now focusing on investment to raise yields rather than dedicating even more land to the oilseed.

"Improving yields is the main objective through better seeds because we're OK in terms of logistics, and I don't think they'll be much expansion in sowing area," Bauer said.

Some industry analysts think farmers could clear new lands in remote northern areas that are currently used for cattle ranching and marijuana cultivation, but crime and a limited police presence could deter growers.

Lugo's government last month gave security forces special powers in five northern provinces to capture members of an armed leftist group, although most soy farmers say the overall security situation has improved in recent years.

Despite the farming sector's vulnerability to drought, crime and the ups and downs of global prices, Bauer expects soy output to keep on growing: "Paraguay's advantage is that we produce staples and people are going to continue to buy food."

(Writing by Helen Popper; Editing by Walter Bagley)