The Big Question: Why are food prices rising so fast, and who are the beneficiaries?

Why are we asking this now?

Because the effects of climbing food prices are being felt across the globe, with prices of several different staple foodstuffs reaching record levels. British shoppers are now feeling the pinch of pricier groceries. Food price inflation was running at more than 5 per cent in October, while new figures published today are expected to show that spiralling food prices are having an impact on overall inflation. The knock-on effects are beginning to be felt throughout the economy. A steep increase in the price of basmati rice is causing problems among the country's Indian restaurants. The price increase has been caused partly by a change in diet. Basmati rise, once only found in specialist Asian stores, now accounts for about half of the total rice sales in this country. But there are also global factors at work.

So where is affected by rising food prices?

Everywhere. Rising food prices are a worldwide reality. New benchmark prices for cereals came into effect yesterday, which could herald in a fresh wave of food-price inflation. In the US, wheat and rice prices have reached a record high, while soya beans are at their highest price since the early 1970s and corn is at its most expensive for more than a decade. Food-price inflation in America is running at just under 5 per cent. In Europe, food-price inflation of 4.3 per cent was a main cause of the Eurozone's jump to a 3.1 per cent inflation rate last month, its highest level for six years.

According to the latest report from the UN's Food and Agriculture Organisation (FAO), high grain prices are hitting developing countries the hardest. It warned of "substantial rises in retail prices of cereal based food staples, such as bread, pasta and tortillas, as well as milk and meat, in countries across the world", adding that the prices were even "fuelling social unrest". Soaring food costs have caused riots in some areas, including Mexico, Morocco, Yemen and Senegal.

Who is suffering the most?

Those on fixed incomes will suffer from increased prices the most. In Britain, this will be the poorest members of society, such as the elderly and those surviving on benefits.

Though increases in food prices may be difficult for consumers in the developed world, it is a much more acute problem in the world's poorer regions, where people already spend up to 80 per cent of their income on food. The FAO says that if prices continue to climb, the diets of the poorest people in the developing world will deteriorate, because they are the most reliant on basic cereals such as wheat and grain.

In India, the cost of basmati rice has almost doubled in the past year. The government of the United Arab Emirates tried to cap the price of rice but found that it disappeared from its stores altogether. The FAO says there are 37 countries that are currently facing a food crisis.

What is causing the price increases?

Just like every other area of the world's economy, the wheels of agriculture are greased with oil. The spiralling cost of oil, now at more than $90 a barrel, has had an impact on farming costs and the transportation of food.

Demand is the main factor behind the global food price inflation, however. Production of cereals is not really the problem. It is at record levels in the US and production in the Far East also managed to hit record highs, despite a series of natural disasters. But even record levels of grain production are being outstripped by ravenous world demand. Demand has increased greatly, particularly from China, which is sucking in vast quantities of food imports. And, with the world's population increasing, things look set to worsen.

Finally, cereals which had been used for food in the past are being diverted into the production of biofuels, such as ethanol. Biofuels were blamed for a huge rise in maize prices earlier this year, which led to unrest in Mexico after the price of tortillas more than tripled over six months.

So who's gaining from higher prices?

With grain prices in Britain more than doubling over the past three years, farmers are reaping the benefits of increased demand. World cereal production this year was at a record high, up 4.7 per cent on 2006, according to the United Nations. Demand will only keep increasing in the immediate future, giving farmers around the world a captive market.

Chinese families are also benefiting from new food supplies, which is giving them a new variety to their diets. China's population, with a growing middle class, is eating much more meat than in the past, leading to a greater demand for grain and cereals for animal feed.

Are British consumers being cheated?

Two supermarkets, Sainsbury's and Asda, recently admitted keeping the price of dairy products artificially high, leaving shoppers out of pocket to the tune of 270m. Then, an inquiry into the grocery industry by the Competition Commission found that competition was working well. Food prices are increasing in the UK for the same reasons that have caused them to rise across the world.

Can governments do anything to help?

As food prices continue to increase, governments will inevitably come under greater pressure to ease import tariffs designed to protect domestic farmers from cheap food imports. Signs of an easing of tariffs have already appeared as governments try to protect their populations from rising prices. Turkey has just slashed duties on wheat, corn and barley, while the European Union the world's biggest importer of wheat has said it will dispense with import duties altogether next summer. Countries which have already lowered their import duties include China, Russia, Mexico, Egypt, India, Nigeria, Ghana and Peru. But while this government action is good news for consumers in the short-term, it will not solve the fundamental problem of demand outstripping the current supply of basic foodstuffs.

Any prospects of things changing?

Experts do not expect food prices to increase on a steady upward curve. Rather, prices in the short term will go up and down, as new areas begin to farm on a larger scale because of the level of world demand. But, in the longer term, prices are expected to keep heading up. There are two main reasons for that prognosis. According to the UN, the world's population will top nine billion by 2050 and that is a lot more mouths to feed.

The second factor fuelling long-term price inflation is climate change. Bad harvests have already had an impact on rice production, and current thinking suggests that the changing climate will damage overall food production in the years ahead.

Should we be worried about rising food prices?

Yes

* It will be the poorest people who will be hit the hardest by expensive foods

* With the world's population predicted to reach 9 billion by 2050, food shortages are likely to become even more common in the future

* It is not just an issue of money. Spiralling prices have already caused riots throughout the world

No

* Britain has recently been diagnosed with a competitive food market. We should be able to cope as well as anyone with rising costs

* With demand for food so high, the world's farming capacity is bound to expand in response

* Biofuel engineers are developing ways of taking fuel production out of the food chain. That should ease the pressure on food supply