By Rod Nickel

WINNIPEG, Manitoba, Nov 26 (Reuters) - The Canadian province of Ontario's move to protect bees by reducing use of an insect-killing pesticide may diminish corn and soybean production, seed companies said on Wednesday.

Beekeepers welcomed the move by Ontario, the first North American government to curb use of seed treated with neonicotinoids, which are used to kill insects that harm crops.

Ontario, Canada's biggest producer of corn and soybeans, said on Tuesday that it aims to reduce by 80 percent the acres planted with neonicotinoid-treated corn and soybean seed by 2017. Fruits and vegetables need pollinators like bees to grow and a federal agency has linked bee deaths to neonicotinoids.

If approved, new rules will go into place by July 1, 2015.

The change would affect about 95 percent of corn and 60 percent of soybeans planted in Ontario, said Dave Baute, president of the Canadian Seed Trade Association, whose members include Syngenta, Monsanto and DuPont Pioneer . The companies treat seed with pesticide and sell it to farmers.

"It's hard to get our head around just how serious the implications are for our industry," Baute said on Wednesday.

Restricting neonicotinoids could force farmers into practices that may hurt the environment, such as tilling soil more often to control insects, Baute said.

Rapeseed crops in Germany are suffering high insect damage after the European Union's ban on neonicotinoids, a farm association said.

Ontario's reduction is impractical to implement and could lower yields if insect attacks don't allow crops to properly grow and establish themselves, Baute said.

Tibor Szabo, who produces about 1,000 hives per year near Guelph, Ontario, lost 60 percent of his bees over winter, compared to his usual mortality rate of two to 10 percent.

Ontario's decision "had to be done or the business of beekeeping would no longer be sustainable or part of the future in Ontario," Szabo said. "This is the worst year I have ever seen it."

The seed association said companies and farmers have already greatly reduced bee deaths since 2012 by better controlling dust during planting, citing a 70 percent drop in reported bee deaths in 2014 from 2013.

Those numbers don't take into account that a large percentage of Ontario bee colonies had already died, and a cold spring left bees less active this year, Szabo said.

(Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by Grant McCool)