By Mariel Cristaldo

ASUNCION, Sept 12 (Reuters) - Paraguay's new government is planning land reforms that could limit the spread of soybeans in parts of the poor country, the world's No. 4 soy exporter.

Agriculture Minister Candido Vera told Reuters land reform was a priority for the administration of President Fernando Lugo, a former Roman Catholic bishop who used to fight for peasant rights in the landlocked country of 6 million people.

He said the government hoped to present a bill to Congress at the end of this year that would limit some farming activities in certain areas in order to avert conflicts between large-scale soy growers and peasant farmers.

"The possibility of regulating farm production is a project that's currently being discussed by experts. But we want other people to be involved," he said in an interview late on Thursday.

Paraguay's small economy is heavily dependent on earnings from farm exports such as soybeans and beef, and agriculture accounts for about 40 percent of gross domestic product.

While it lags far behind neighboring Argentina and Brazil in terms of soy production, Paraguayan harvests have grown fast in the last five years and a record crop of 6.8 million tonnes was gathered this season.

However, the boom has sparked controversy. Peasant farmers frequently make threats, and sometimes occupy land and burn crops in protest of the ever-expanding soy area, which they blame for driving villagers to the cities.

Some peasant farmers say soy is profitable only for the biggest landholders and many have sold off their plots, adding to disparities in a nation where land ownership is concentrated in a small percentage of the population.

DEFORESTATION

Environmental campaigners blame the country's soy boom for deforestation and soil erosion, and Vera said the land reform would analyze the environmental impact of soy farming and its affect on rural communities.

"For example, soy farming couldn't be permitted in the district of Neembucu (marshlands) where you need to have ranching or crops that require irrigation," he said.

Farm leaders have expressed concern at the government's land reform plans, but officials say they will be consulted on the bill because the aim is to "avoid confrontation and build consensus."

"We don't want to damage productivity. We want to live in harmony, with profitability, respect for the environment and for local communities," he added.

The land reform also envisions redistributing small holdings to peasants and subsidizing poor, small-scale growers.

Land redistribution plans by the leftist government in neighboring Bolivia have angered wealthy landowners in the main soy-growing region of Santa Cruz.

Industry analysts expect Paraguay to produce about 7 million tonnes of 2008/09 soy. Farmers will start sowing in about a month on an estimated growing area of 2.8 million hectares. (Writing by Helen Popper, editing by Matthew Lewis)

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