The prices of many everyday staples such as bread, flour and beer are set to rise sharply as Russia imposed a ban on grain exports, triggering panic in commodities markets and sending wheat prices to their highest since the 2008 food crisis.

Vladimir Putin, Russian prime minister, announced the ban, starting next week, on all the country's grain exports after a severedrought devastated crops and wildfires spread across the country.

The move, which caught traders and food producers by surprise, pushed the price of wheat to its highest in two years and evoked memories of the last time the then Soviet Union suffered a catastrophic crop failure in 1972.

"There is full blown panic in the European grain market," a seniortrader said.

European wheat prices rose more than 12 per cent to hit a peak of €236 a tonne on record trading volumes. US wheat futures also jumped and are up more than 80 per cent since mid-June, the fastest rally in nearly 40 years. There were fears that food price inflation could take off and that the world could even suffer a repeat of the 2008 food crisis should the big shortfall in wheat outputpersist. "Soaring grain prices have brought food inflation back to centre stage," said Joachim Fels of Morgan Stanley in London.

Prices of other crops including barley, corn and rapeseed, also jumped sharply.

Shares in some of the world's largest food companies tumbled on fears they would struggle to pass on all the increased costs of buying wheat to millions of households already suffering the effects of the financialcrisis. However, several companies have already said they plan immediate price hikes on goods, such as bread and biscuits.

Unilever, the British consumer goods group, dropped 5.2 per cent, while General Mills, one of the world's largest food companies, was 2.5 per cent lower. Nestlé fell 2.1 per cent.

"I think it would be expedient to introduce a temporary ban on export grains and other agricultural goods," Mr Putin told a cabinet meeting. "We cannot allow an increase in domestic prices and we need to maintain the number of cattle."