June 16 (Bloomberg) -- High food prices ``are here to stay'' as governments divert resources to make biofuels, amass stockpiles and limit exports, according to Peter Brabeck-Letmathe, chairman of Nestle SA, the world's largest food company.

Food prices ``will establish themselves on a higher level but not at the peaks we have seen,'' Brabeck, 63, said in an interview today on Bloomberg Television. Still, Vevey, Switzerland-based Nestle has no plans to raise prices further this year, he said.

Finance ministers from the Group of Eight nations warned June 14 that surging food and fuel prices have replaced the credit squeeze as the biggest threat to the world economy. Corn, wheat, and rice have soared to records this year, putting millions in Asia at risk of hunger, according to the Asian Development Bank.

``Food prices, such as rice and wheat, may go up further,'' Takaki Shigemoto, an analyst at Tokyo-based commodity broker Okachi & Co., said by phone today. The gains may be led by higher corn and soybean prices following U.S. floods, he said.

Rough-rice futures gained to an all-time high of $25.07 per 100 pounds on the Chicago Board of Trade on April 24, driven higher by export restrictions imposed by nations including Egypt and India. The most-active contract for the staple food for half the world traded at $19.50 at 2:04 p.m. in Kuala Lumpur.

Corn futures advanced to a record $7.915 a bushel today after the U.S. flooding. Wheat futures touched an all-time high of $13.495 a bushel on the Chicago Board of Trade on Feb. 27 on increased demand for U.S. exports. The most-active contract, for delivery in September, traded at $9.075 a bushel today.

Boosting Costs

The International Monetary Fund predicts the fastest inflation in advanced economies since 1995 this year even as growth is the slowest in seven years. Rising prices threaten to cut growth further by sapping household budgets and boosting costs. Prices have also sparked protests from Malaysia to Spain.

``I think higher prices are here to stay,'' Brabeck said from Kuala Lumpur, Malaysia, referring to wheat, soybeans, milk, coffee and other food crops. ``A third of it is due to the utilization of a part of food to fuel. Another third is another political decision: we intervene by not allowing exports.''

Governments worldwide have backed the addition of foods such as sugar to diesel to help stretch fossil fuel supplies. The diversion of land for the cultivation of crops for ethanol has contributed about 30 percent of the rise in food prices, the Washington-based International Food Policy Research has said. The U.S. has put the figure at less than 3 percent.

Threatening Stability

The comments from Brabeck echo a forecast last month from the United Nations' Food & Agriculture Organization. The Rome-based food agency said May 28 that cereal prices will stay high for ``some time,'' threatening stability and growth in developing nations most reliant on commodity imports.

Developing economies may have to pay 33 percent more for food imports this year, the FAO said in a report. Eritrea, Niger and Botswana are among those most vulnerable since they import all their oil and at least three-quarters of the wheat, rice and corn that they consume, the FAO said.

The Nestle chairman said yesterday that Asian governments should scrap food subsidies because they are causing price increases and worsening the global supply crisis. Subsidizing food ``distorts the free market and therefore it has a negative impact on the availability of food,'' he told reporters at the World Economic Forum on East Asia.

Brabeck, chief executive officer of Nestle until April, trimmed the company's assets, selling chocolate and pasta plants, even as he led a $30 billion decade-long acquisition drive. Nestle raised prices by about 3 percent on average last year, the biggest increase since 1997, according to Roddy Child-Villiers, head of investor relations.

To contact the reporter on this story: Jean Chua in Kuala Lumpur at jchua4@bloomberg.net

Last Updated: June 16, 2008 03:14 EDT