Excess liquidity in global markets is driving up prices of farm commodities, which could be potentially dangerous in the near term, World Bank President Robert Zoellick said on Friday.
With global interest rates at historic lows, investors are piling into different markets and asset classes in search of higher returns, raising concerns about possible asset bubbles.
"I am somewhat concerned with a lot of liquidity in global markets," Mr. Zoellick told a news conference.
"You could see additional moves towards the agricultural commodities sector, if there were perceptions of market shortages."
Mr. Zoellick did not elaborate on his warning about potential dangers of surging food prices.
Excessive speculation has been blamed for sending food and crude oil prices to record highs last year, putting even more pressure on the poor. Food scares sparked hoarding and riots in many developing countries.
Since last year's record levels, prices of staple commodities like rice, corn and wheat have fallen, but market watchers believe new spikes are all but inevitable.
Average crop prices are projected to be 10-20 per cent higher in real terms in 2009-2018 than in 1997-2006, while real prices for vegetable oils are expected to rise more than 30 per cent, according to the OECD-FAO Agricultural Outlook.
The number of hungry people in the world topped one billion this year, according to the U.N. Food and Agriculture Organization (FAO), due to the combined effect of the global financial crisis and a spike in basic food commodities prices.
The number of malnourished as a percentage of the developing world's population has also started to rise again. After falling from 20 per cent in 1990-92 to just under 16 per cent in 2003-05, it now stands at almost 18 per cent.
"These are harbingers of potential dangers in 2010," Mr. Zoellick said.
FAO says a long-running decline in farm investment is the main culprit behind food shortages and estimates $44-billion in new investment is needed annually to boost agriculture in developing countries.
The World Bank president said investment in technology is also key to boosting farm productivity.
"We have to keep those advances in agricultural technology and make sure that it gets to the local sector."