Over the last two years there has been a rapid rise in the world prices of almost all basic foods like rice, wheat, maize, soyabeans, edible oils etc. leading to high incidence of hunger and malnutrition around the world. This is a serious threat to the global economy, where millions of people are excluded from consuming food, simply because they do not have the purchasing power to buy it. Food riots have erupted in various countries like Bangladesh, Mexico, the Philippines and elsewhere, and if the existing situation persists, it may give rise to political instability and threat of mass revolt all over the world. Even the three day World Food Summit, convened by the FAO of the United Nations, which ended in Rome on June 5, unfortunately failed to recognise the problem in the right perspective. Why is the global food crisis? We believe that the present crisis is the result of both demand and supply side factors. The supply side factors are a shortage in food availability caused either by a set back to production or diversion of food for non-food use, and an increase in the cost of inputs that go into food production, such as rise in prices of crude oil and other sources of energy. The demand side factors relate to a higher use of food, caused by growth in population, improvement in purchasing power, shifts in dietary patterns due to an increase in incomes or change in tastes. All these are real factors prices can also increase due to speculative investments in commodity markets and artificial scarcities caused by business firms and dishonest traders. Diversion of food grains for bio-fuel in the form of ethanol and bio-diesel is the primary factor held responsible for increasing the demand for grains, which has caused a major surge in prices. In the US one fifth of total corn output is now used for bio-fuel production which is likely to rise to 30 per cent by 2010. The diversion of food grains for bio-fuel is taking place not only in US economy, but it also spreads to other European countries which have caused higher demand for food grains. The second factor on the demand side is the ongoing shift in dietary patterns towards livestock and high value agricultural products. Changes in dietary patterns due to an increase in income have two major dimensions. One the increase in per capita intake itself. Second, an increase in per capita income in developing countries like China and India results in a rapid increase in per capita consumption of meat and other livestock products, which require several kilos of grain to produce one kilo of livestock. On the supply side, the world production of cereals has remained stagnant around 2,100 million tonnes after 1996 onwards whereas population in the globe has been increasing by about 78 million per year. As a result, per capita production of cereals in the world declined from 362 kg in 1997-99 to 336 kg in 2005-07. Another significant supply side factor behind rising grain prices is the increase in the price of crude oil, which has raised the cost of agricultural products