The biggest rap about investing in emerging markets has been that they suffer from out-of-control inflation. The high prices of food and fuel undermined otherwise strong economic progress in emerging nations. On a conservative estimate, food-price rises may reduce the spending power of the urban poor and country people who buy their own food by 20%, according to the Economist.

The same forces that hurt the U.S. economy wreak havoc on developing nations. Groceries go up, fuel goes up and discretionary spending goes down.

Now emerging markets are taking on the U.S and other Western nations to curb inflation. Their weapon is food.

China, India and a host of allies are blocking U.S. foods from coming into their markets. At the same time, they are cutting exports and continuing the subsidies that ultimately provide cheaper food to the indigenous marketplace. These moves are aimed at keeping affordable food within their borders as a means of controlling inflation.

Rice, corn and cooking oils are the staples of the poor. Unfortunately, inflation is literally taking food off the table of the people who need it most.

The food riots that made headlines in 2007 are still going on in places in frontier markets such as Africa, Mexico and Egypt — countries that supply the West with raw materials such as oil, natural gas and grains.

The consensus is that 10 years of economic progress are about to be erased by inflation-induced starvation.

Thanks to the Bush administration, ethanol production will devour 30% of the U.S. corn crop by 2010. Over 40% of the increase in global maize consumption from 2000 to 2007 was also attributed to U.S. biofuel production.

Between March 2006 and March 2008 the international food price index nearly doubled — surging 82%. The price of wheat has jumped 120% in the past year, he said — meaning that the price of a loaf of bread has jumped more than 100% in places where the people spend as much as 75% of their income on food.

However, a recent development at the World Trade Organization reveals that emerging markets have won a major food fight. After intense negotiations, China, India and a coalition of about 30 emerging nations that belong to WTO have opted to raise tariffs on imported food and reduce — or eliminate — food exports.

While this could result in higher food prices in the U.S., it also means that lower food prices in emerging markets can reduce inflation and create investment opportunities.

For investors, the longer term implications are that lower inflation in these resource-rich nations could open the door again to windfall profits.

China and India are both textbook cases of triumphant emerging economies, which have made investors quite wealthy. But the price of food has staunched a consumer spending spree in the very same ways that the U.S. retail sector has suffered from inflation.

Despite the slowdown, the fundamentals of emerging markets actually look much stronger than the U.S. The growth in East Asia’s emerging economies will slow to 7.6% in 2008 and 2009, down from an average growth of 9% in 2007, according to the Asian Development Bank.

By comparison, the University of Michigan said the U.S. economy will expand in 2007 and 2008, but at a pace well below the 3.2% increase in real GDP growth of this year and last year. So as you can see, even in sluggish times, Asia outperforms the U.S. by some 137% over a two-year period.

That’s certainly impressive, but it could be much better.

If emerging economies can rein in inflation through domestic agricultural policies, it’s quite possible that they can resume their economic progress and return to their wild and wooly moneymaking ways.