The price of coarse rice, the staple food of poor Bangladeshis, has more than doubled in a year [EPA]

The warning came after riots related to increasing food prices and low wages rocked Haiti and Egypt.
 
The increases have been caused in part by drought in Australia and central Europe, and more demand for food in Asian countries, Dominique Strauss-Kahn, IMF managing director, said on Thursday.

Strauss-Kahn's comments came on the eve of a meeting of finance ministers and central bank chiefs of the Group of Seven industrial countries in Washington DC.

Biofuels link

The increased use of grains to produce biofuels, first heralded as a way to cut greenhouse gases, combined with a rising demand for food in emerging market economies, has contributed to grain shortages and food riots.

The IMF has calculated that corn ethanol production in the US accounted for at least half the rise in world corn demand in each of the past three years.

Washington provides a subsidy of 51 cents a gallon to ethanol blenders and slaps a tariff of 54 cents a gallon on imports.

In the European Union, most countries exempt biofuels from some gas taxes and slap an average tariff equal to more than 70 cents per gallon of imported ethanol.

"Food prices, for instance, increased by 48 per cent since the end of 2006 until now, which is a huge increase, and it may undermine all the gains we have obtained in reducing poverty," Strauss-Kahn said.

Price riots

Riots over food price rises began in southern Haiti earlier this week and quickly spread to the capital Port-au-Prince, where tens of thousands took to the streets.

Four were killed in the disturbance, while UN peacekeepers drove away rioters used rubber bullets and tear gas to drive away rioters from the presidential palace.

Most Haitians live on less than $2 a day.

Reports suggest the most desperate have turned to eating cookies made of dirt, vegetable oil and salt.

Meanwhile, at least seven people have died in Egypt in riots earlier this week, sparked partly by rises in the price of bread of other foods.

Similar riots have been reported in Burkina Faso, Mauritania, Indonesia and Peru.

Historic levels

Robert Zoellick, World Bank president, said on Thursday that while developed nations struggled with high fuel cost of fuel to run their cars, poor people in developing nations were struggling to feed themselves.

"In many developing countries, the poor spend up to 75 per cent of their income on food. When prices of basic foods rise, it hits hard", he said.

Rising bread prices in Egypt have contributed to protests that led to several deaths [EPA]

"In just two months, rise prices have skyrocketed to near historic levels, rising by around 75 per cent globally and more in some markets - with more to come."

Zoellick said the world needs to recognise food price inflation is contributing to a growing emergency, one which the UN World Food Programme has said requires $500 million just to fill immediate need.

The World Bank says food price inflation is not a short-term phenomenon but will likely persist through 2008 and 2009 before demand slackens due to high prices.

Most people in the world's wealthiest countries take food for granted.

Even the poorest fifth of households in the US spend only 16 per cent of their budget on food.

By contrast, Nigerian families spend 73 per cent of their budgets on eating, Vietnamese 65 per cent, while Indonesians allocate half.

Last year, the food import bill of developing countries rose by 25 per cent as food prices rose to levels not seen in a generation.

Food commodities

World financers have also been adding to the food price problem.

Commodities, as an asset class, have attracted investors looking not only for a safe haven from the carnage in highly leveraged mortgage investments.

A senior UN official has said that global investment funds and the weak dollar are largely to blame for the world's rise in food prices.

"The crisis is a speculative attack and it will last", Jose Graziano, the UN food and farm organisation's regional representative for Latin America and the Caribbean, said.

"The lack of confidence in the [US] dollar has led investment funds to look for higher returns in commodities ... first metals and then foods."

Investors have speculated in commodities including wheat, corn and rice because stocks in recent years have been drawn down by rising demand in emerging markets and supply shortages due to adverse climate in key producer nations, Graziano said.

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