LATE last month, the World Food Programme (WFP), the United Nations agency responsible for distributing aid from donations by governments around the world, announced a $500m budget shortfall owing to soaring fuel and, particularly, food prices. The prices of the staple food items distributed by the WFP had risen by an average of 40% since June last year.

Since making that announcement, the WFP has reported that food prices have risen by another 20%. The WFP had changed to buying food locally to cut costs, so this massive further acceleration of food inflation is particularly severe in the Third World and probably reflects panic buying and the hoarding of food by those worried about rising prices and/or shortages in the shops. The only thing preventing food prices rising even more rapidly is poor people around the world consuming less because they cannot afford the higher prices or because of shortages.

The WFP distributes aid to around just 70 million people; obviously a huge number of people now require aid who previously didn't to avoid starving to death. Meanwhile, the WFP is warning that if it does not receive more government funding by May 1, it might cut "the rations for those who rely on the world to stand by them during times of abject need".

Food prices have risen sharply in the west, too, albeit to a lesser extent owing to the huge profit margins in the supply chain.

The demand for food is massively outstripping supply, mainly due to a lot of land being used for biofuels (supposedly to reduce global warming) and people in some countries (such as China) consuming more meat and dairy products, both of which require much more farmland (by a factor of eight for meat) than is required for vegan diets. Additionally, there is a problem with a fungus destroying wheat, and floods and droughts are affecting harvests.

The food crisis impacts on the other major crisis of capitalism: the credit crunch. The problem to date has largely been of sub-prime mortgages, with flexible interest rates that massively increase after starting low, sold to people with poor credit records. The collapse of the US bank Bear Stearns shows there is a crisis with other mortgages as well.

With (real) inflation rising, many more financial institutions could go to the wall. Rather than just a slowdown, recession or slump, we are heading towards a massive, possibly terminal, crisis of unethical capitalism such as occurred in 1914. On that occasion, stock markets around the world were closed for several months to avoid a meltdown.

There will need to be a complete reorganisation of the world economic system to resolve the situation.

Maybe there could be a more ethical form of capitalism, in which, I would argue, rich people pay their fair share of tax; there would be a fair electoral system as well as there being ethical approaches to farming, the environment, animals and poor people via fair trade. Perhaps banks and building societies would return to concentrating on savings and loans.

What happens will largely depend on what ordinary people striving to change society do, and on the impact of politicians, stock-market investors and big business.

Economists can't model the free will of individuals, so their relatively optimistic economic forecasts are largely speculative and will be proven false by events.

Dr Steve Wallis, Gartnavel Royal Hospital, 1055 Great Western Road, Glasgow.