Speculative investors have created an unsustainable bubble in international food markets, exacerbating the sharp rise in prices that has led to riots around the world, economists say.
Jim O'Neill, chief economist at Goldman Sachs, said rising demand from emerging countries such as Brazil, India, China and Russia, explainedsome, but not all, of the price surge, which has seen the cost of wheat double in 12 months.
"I see so much focus on food and it seems to be so trendy in the investment world," O'Neill said. "The underlying dilemma has been created by the wealth of the BRICs [Brazil, Russia, India, China] countries but, for the past year or so, it's also been a major theme for financial institutions. The markets seem to have a bubble-like quality."
Robert Zoellick, president of the World Bank, recently warned that the soaring cost of food could set back the global fight against poverty by up to seven years.
Social unrest has broken out in many emerging countries in the past year, as consumers have protested against huge increases in the cost of basic commodities, such as bread and rice.
Some analysts believe the bubble will collapse as supply responds to rising demand. Robert Ward, of the Economist Intelligence Unit, said he expected prices to drop 8.5 per cent next year and another 17.6 per cent in 2010.
Sean Rickard, from the Cranfield School of Management, said: "High prices will bring forth quite a significant increase in land area used for cereals this year. Australia will come back now its drought is over."
He predicted a 40 per cent drop in wheat prices in 2009.
