Global Policy Forum

By Julian Borger

The United Nations warned yesterday that it no longer has enough money to keep global malnutrition at bay this year in the face of a dramatic upward surge in world commodity prices, which have created a "new face of hunger."

"We will have a problem in coming months," said Josette Sheeran, the head of the UN's World Food Programme (WFP). "We will have a significant gap if commodity prices remain this high, and we will need an extra half billion dollars just to meet existing assessed needs." With voluntary contributions from the world's wealthy nations, the WFP feeds 73 million people in 78 countries, less than a 10th of the total number of the world's undernourished. Its agreed budget for 2008 was $2.9bn (£1.5bn). But with annual food price increases around the world of up to 40% and dramatic hikes in fuel costs, that budget is no longer enough even to maintain current food deliveries. The shortfall is all the more worrying as it comes at a time when populations, many in urban areas, who had thought themselves secure in their food supply are now unable to afford basic foodstuffs. Afghanistan has recently added an extra 2.5 million people to the number it says are at risk of malnutrition.

"This is the new face of hunger," Sheeran said. "There is food on shelves but people are priced out of the market. There is vulnerability in urban areas we have not seen before. There are food riots in countries where we have not seen them before." WFP officials say the extraordinary increases in the global price of basic foods were caused by a "perfect storm" of factors: a rise in demand for animal feed from increasingly prosperous populations in India and China, the use of more land and agricultural produce for biofuels, and climate change. The impact has been felt around the world. Food riots have broken out in Morocco, Yemen, Mexico, Guinea, Mauritania, Senegal and Uzbekistan. Pakistan has reintroduced rationing for the first time in two decades. Russia has frozen the price of milk, bread, eggs and cooking oil for six months. Thailand is also planning a freeze on food staples. After protests around Indonesia, Jakarta has increased public food subsidies. India has banned the export of rice except the high-quality basmati variety.

"For us, the main concern is for the poorest countries and the net food buyers," said Frederic Mousseau, a humanitarian policy adviser at Oxfam. "For the poorest populations, 50%-80% of income goes on food purchases. We are concerned now about an immediate increase in malnutrition in these countries, and the landless, the farmworkers there, all those who are living on the edge."

Much of the blame has been put on the transfer of land and grains to the production of biofuel. But its impact has been outweighed by the sharp growth in demand from a new middle class in China and India for meat and other foods, which were previously viewed as luxuries."The fundamental cause is high income growth," said Joachim von Braun, the head of the International Food Policy Research Institute. "I estimate this is half the story. The biofuels is another 30%. Then there are weather-induced erratic changes which caused irritation in world food markets. These things have eaten into world levels of grain storage."The lower the reserves, the more nervous the markets become, and the increased volatility is particularly detrimental to the poor who have small assets."The impact of climate change will amplify that already dangerous volatility. Record flooding in west Africa, a prolonged drought in Australia and unusually severe snowstorms in China have all had an impact on food production."The climate change factor is so far small but it is bound to get bigger," Von Braun said. "That is the long-term worry and the markets are trying to internalise it."

The WFP is holding an emergency meeting in Rome on Friday, at which its senior managers will meet board members to brief them on the scale of the problem. There will then be a case-by-case assessment of the seriousness of the situation in the affected countries, before the WFP formally asks for an increased budget at its executive board meeting in June.But the donor countries are also facing higher fuel and transport costs. For the biggest US food aid programme, non-food costs now account for 65% of total programme expenditure.

Global impact: Where inflation bites deepest

1 United States The last time America's grain silos were so empty was in the early seventies, when the Soviet Union bought much of the harvest. Washington is telling the World Food Programme it is facing a 40% increase in food commodity prices compared with last year, and higher fuel bills to transport it, so the US, the biggest single food aid contributor, will radically cut the amount it gives away.

2 Morocco 34 people jailed this month for taking part in riots over food prices.

3 Egypt The world's largest importer of wheat has been hard hit by the global price rises, and most of the increase will be absorbed in increased subsidies. The government has also had to relax the rules on who is eligible for food aid, adding an extra 10.5 million people.

4 Eritrea It could be one of the states hardest hit in Africa because of its reliance on imports. The price rises will hit urban populations not previously thought vulnerable to a lack of food.

5 Zimbabwe With annual inflation of 100,000% and unemployment at 80%, price increases on staples can only worsen the severe food shortages.

6 Yemen Prices of bread and other staples have nearly doubled in the past four months, sparking riots in which at least a dozen people were killed.

7 Russia The government struck a deal with producers last year to freeze the price of milk, eggs, vegetable oil, bread and kefir (a fermented milk drink). The freeze was due to last until the end of January but was extended for another three months.

8 Afghanistan President Hamid Karzai has asked the WFP to feed an extra 2.5 million people, who are now in danger of malnutrition as a result of a harsh winter and the effect of high world prices in a country that is heavily dependent on imports.

9 Pakistan President Pervez Musharraf announced this month that Pakistan would be going back to ration cards for the first time since the 1980s, after the sharp increase in the price of staples. These will help the poor (nearly half the population) buy subsidised flour, wheat, sugar, pulses and cooking fat from state-owned outlets.

10 India The government will spend 250bn rupees on food security. India is the world's second biggest wheat producer but bought 5.5m tonnes in 2006, and 1.8m tonnes last year, driving up world prices. It has banned the export of all forms of rice other than luxury basmati.

11 China Unusually severe blizzards have dramatically cut agricultural production and sent prices for food staples soaring. The overall food inflation rate is 18.2%. The cost of pork has increased by more than half. The cost of food was rising fast even before the bad weather moved in, as an increasingly prosperous population began to demand as staples agricultural products previously seen as luxuries. The government has increased taxes and imposed quotas on food exports, while removing duties on food imports.

12 Thailand The government is planning to freeze prices of rice, cooking oil and noodles.

13 Malaysia and the Philippines Malaysia is planning strategic stockpiles of the country's staples. Meanwhile the Philippines has made an unusual plea to Vietnam to guarantee its rice supplies. Imports were previously left to the global market.

14 Indonesia Food price rises have triggered protests and the government has had to increase its food subsidies by over a third to contain public anger.

FAQ: Food prices

Few winners and many losers

What is the problem?

In the three decades to 2005, world food prices fell by about three-quarters in inflation-adjusted terms, according to the Economist food prices index. Since then they have risen by 75%, with much of that coming in the past year. Wheat prices have doubled, while maize, soya and oilseeds are at record highs.

Why are food prices rising?

The booming world economy has driven up prices for all commodities. Changes in diets have also played a big part. Meat consumption in many countries has soared, pushing up demand for the grain needed by cattle. Demand for biofuels has also risen strongly. This year, for example, one third of the US maize crop will go to make biofuels. Moreover, the gradual reform and liberalisation of agricultural subsidy programmes in the US and Europe have reduced the butter and grain mountains of yesteryear by eliminating overproduction.

Who are the winners and losers?

Farmers are the obvious winners, as are poor countries that rely extensively on food exports. But consumers are having to pay more, and the urban poor in many developing states will be hardest hit, as they often spend more than a third of their income on food.

How long are prices likely to be high?

The US department for agriculture says the country's wheat stocks are at their lowest for 50 years and demand will continue to exceed supply this year. There is potential to bring more land into production in countries such as Ukraine, but that could take time. And as all foodstuffs have risen sharply in price there is little incentive for farmers to switch from one crop to another.

What about the EU's common agricultural policy?

High food prices certainly remove the need to subsidise farmers and so there is a chance, say experts, that badly needed reductions in CAP subsidies, which cost European taxpayers dearly, could now be within reach.

Are other commodity prices also rising?

Oil, metals and coal have seen their prices rise strongly as the global economy has expanded rapidly, driving up demand for almost everything, particularly from emerging economies such as China and India. Some economists think speculation may also play a part. Disappointed by the sub-prime collapse and falling property values in many countries, investors have piled money into commodities.