Processing grains such as wheat and corn into ethanol or oilseed rape and palm oil into biodiesel will have an impact on the world's food chain.

Deloitte, the business advisory firm, says the knock-on effect on UK agriculture is likely to mean price increases of staple foods for UK consumers.

Mark Hill, food and agriculture partner at Deloitte, said: "The price of corn has doubled in the last 12 to 18 months, up from $2 per bushel ($70 to $80 per tonne), to over $4 per bushel ($160 to $170 per tonne).

"Similarly, in June wheat prices across the US and Europe hit their highest levels in more than a decade."

He reckons these price increases are likely to trigger inflation in food prices as processors are forced to pay higher costs for basic ingredients such as corn and wheat.

The impact may appear obvious on direct products like bread, but it is likely to also affect other foods.

With every £10 per tonne increase in wheat prices, the cost of making a loaf of bread is likely to increase by 1p, so the £50 per tonne increase in the price of wheat is likely to translate into a 5p cost increase in a loaf of bread.

According to Hill: "Overall, the long-term supply and demand issues for grain could lead to sustained increases in the price of food commodities. Looking to the future there is no clear sign that the situation will improve for several reasons.

"The world population is set to rise from six billion to nine billion by 2050, growing at 73 million a year, the equivalent to the population of Germany.

"On a global level, rapid economic growth and consumer affluence in China and India could lead to double the amount of grain consumed in the next 40 years and production may not be able to keep up with demand.

"Drought and floods have threatened many harvests in grain-producing regions. Bad weather in 2006 has reduced output and pushed up prices around the world. The biofuel effect and the move to make energy from crops also play a part. Over 20% of the US corn crop is now used for bioethanol production, which suggests the wheat price is only headed one way."

Hill added: "Stocks at all points in the food chain have been run down and consequently there is no price damper on production volatility or safety net when world demand for grain exceeds production."

Urgent need to plan for end of OCDS
THE Scottish Beef Cattle Association (SBCA) has warned that farmers must immediately plan ahead for the cull of pre '96 cows.

Cattle born before August 1, 1996, cannot enter the food chain and the older cattle disposal scheme (OCDS) is due to end on December 31, 2008.

The OCDS compensates farmers at a rate of 324, currently worth £218.34p, and will reduce to 292 from January 1, 2008.

The British Cattle Movement Service (BCMS) indicates that there are still 70,000 pre '96 cows in Scotland and that 36,000 were culled in the last year. So the capacity window is very tight.

The Rural Payments Agency is introducing a booking-in scheme to maximise disposal capacity and the Scottish Executive is sending information letters to all Scottish cattle farmers.

There is also an OCDS helpline on 0118 968 7333.

John Bell, technical director of SBCA, warned: "If the free uplift of two-year-old cattle ceases, an estimated uplift and disposal charge for a pre '96 cow could be as high as £150, because a pre-'96 animal cannot be rendered, but must be incinerated and then the remains go to land-fill." That cost would be in addition to losing 292 of compensation.