By Daniel Bases

WASHINGTON, April 10 (Reuters) - Skyrocketing food prices threaten to undermine gains made in cutting global poverty and add further strain to a world economy already reeling from a financial market crisis, international development leaders warned on Thursday.

The increased use of grains to produce biofuels, at first heralded as a way to cut greenhouse gases, combined with increased demand for food in burgeoning emerging market economies, is contributing to grain shortages, rising prices, bread lines, and food riots around the globe.

International Monetary Fund Managing Director Dominique Strauss-Kahn said on Thursday "inflation may be back", citing both structural and cyclical factors, including the increased importance of biofuels, which is now a key concern.

"Food prices, for instance, increased by 48 percent 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," he told reporters gathered for weekend meetings of the IMF and World Bank.

Food prices have been driven higher, in part, by drought in Australia and in central Europe, and more demand for food in wealthier Asia.

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

From 2005 through 2007, world wheat prices rose 70 percent, corn gained 80 percent, and dairy prices nearly doubled, up 90 percent.

British Prime Minister Gordon Brown called for a coordinated response by the IMF, World Bank and the United Nations to counter soaring food prices. (For story click on [ID:nN09202170])

"For the first time in decades, the number of people facing hunger is growing," Brown said in a letter to Japanese Prime Minister Yasuo Fukuda, the current chair of the Group of Eight rich industrial nations.

Strauss-Kahn said the initiative by Brown "is absolutely necessary, and probably we are going to talk about this tomorrow at the G7 and see what kind of decision can be made to work together."

STRESS POINTS

Bread shortages in Egypt for the urban poor have contributed to deadly rioting. Similar riots have been reported in Burkina Faso, Mauritania, Indonesia, Peru, and Haiti.

World Bank President Robert Zoellick 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 percent of their income on food. When prices of basic foods rise, it hits hard," Zoellick said.

"In just two months, rise prices have skyrocketed to near historic levels, rising by around 75 percent globally and more in some markets - with more to come," he said while holding a small bag of rice to show reporters.

New research by the IMF and World Bank show that globally poverty is declining but in Africa progress is lagging UN development goals.

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

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

"However, (prices) are likely to remain well above the 2004 levels through 2015 for most food crops," the World Bank said.

Zoellick told Reuters in March that the development bank plans to double the amount in loans made to help boost agriculture production in Africa to $700 million in fiscal 2009 from $420 million. There are plans to push loans up to as much as $850 million in coming years, a bank official told Reuters.

The IMF forecast that food price inflation will cause a deterioration in trade balances for Africa, much of Asia, central Europe, central America and portions of South America.

"What you see is that almost all African countries have a negative impact of these food prices and for some a very important one, so the problem in trade balances means a problem in current accounts, a problem in current accounts means a problem for the IMF," said Strauss-Kahn.