ANALYSIS-Stable Uruguay lures investors in farming, paper

* Cheaper land, stability lure farm, forestry investors

* Presidential election not seen altering economic policy

* Changes in land ownership boosting grains output

MONTEVIDEO, Oct 23 - Foreign investors who have plowed millions of dollars into soy farming and cattle ranching in Uruguay say even the election of a fiery leftist as president is unlikely to ruffle a friendly investment climate.

Voters in the small, South American nation will pick a new leader on Sunday, but both front-runners are expected to maintain the market-friendly policies that have drawn record investment in the key agricultural sector in recent years.

"As a small country surrounded by two big countries like Brazil and Argentina, Uruguay has a very strong belief that the only way to survive is by looking overseas and getting foreign investment," said Carlos Miguel de Leon of New Zealand Farming Systems Uruguay.

Uruguay's mild climate and cheap land caught the eye of parent company PGG Wrightson, but De Leon said the country's reputation as one of the region's most stable economies was one of its biggest draws.

"Regardless of what happens , this isn't a party political issue," he told Reuters.

Sunday's vote pits leftist Sen. Jose Mujica, a former guerrilla fighter, against center-right ex-President Luis Lacalle. Mujica is ahead and one poll showed him winning a likely second round run-off with Lacalle.

Mujica, who has also been agriculture minister, has said land sales to foreigners must be more strictly regulated but he has also vowed to continue economic policies that have seen the country grow strongly since 2003.

Argentine-based agricultural firms such as El Tejar and George Soros's Adecoagro have snapped up land in the sparsely populated nation of 3.3 million people, getting further encouragement by export taxes and shipping curbs in Argentina.

Argentine farmers have staged sporadic strikes over the last 18 months to protest a 35-percent levy on soy shipments and state intervention in the local beef and wheat markets.

Foreign firms such as Brazil's Marfrig have also invested in Uruguayan meat plants and tanneries, but it is land purchases that set Uruguay apart.

"From an international viewpoint, land investment is what stands out because there hasn't been such massive buying everywhere," said Agriculture Ministry official Martin Buxedas.

LAND PRICES

Sales of land to foreign investors reached record levels in the last five years, although the global crisis has dampened interest, said Jose Maria Elorza, director of economic studies at the Uruguayan Rural Association.

He said foreign buyers had been involved in between 20 percent and 30 percent of land deals in the last five or six years, many Argentines but also European and Chilean paper producers buying land for tree plantations.

In the biggest single foreign investment in Uruguay's history, Finland's Metsa-Botnia spent $1.2 billion to build a paper pulp plant that started operating in late 2007 and another plant is planned by a Finnish-Chilean consortium.

Uruguay's land prices used to lag far behind those of its neighbors, which have long been comparable to those of the best arable land in the U.S. Midwest, but surging interest from foreign buyers have seen prices rise up to four times.

Montevideo-based agricultural analyst Eduardo Blasina said the best soy-growing land costs some $8,000 per hectare, up from about $2,000 at the start of the decade.

That has brought local prices closer to those in Argentina, where the most fertile land on the Pampas plains was selling for as much as $15,000 per hectare before the global economic crisis pushed down rental prices.

"It's had an enormous impact on at least two variables; Firstly land prices ... and secondly production because the Argentines came with their own system and they've managed to adapt it to a significant part of Uruguay," Blasina said.

Uruguay's soy harvests are tiny compared to neighboring Brazil and Argentina, the world's second- and third-biggest suppliers of the oilseed, but they are growing rapidly as a result of the new techniques being used.

Soy occupied less than 30,000 hectares in 2001/02, but this season farmers could dedicate up to 700,000 hectares to the crop. Wheat production has also risen sharply as Uruguay seeks to fill the gap left by dwindling Argentine exports.

Argentina's El Tejar farms grains and rears cattle in Uruguay and Country Manager Ismael Turban said there was still scope for greater efficiency and expansion in the country.

Sunday's presidential election is not seen proving an obstacle, he said: "We don't expect big changes if there's a Mujica government and we also don't see Lacalle making significant changes that would affect us."