* Chatham House urges club of 30 top producer and consumer countries
* Sharp swings increase likelihood of conflict and protectionism
* Volatility likely to last into medium term -report author
By Stephen Eisenhammer
LONDON, Dec 10 (Reuters) - Governments must cooperate to tackle increasingly sharp swings in prices of commodities such as food, metals and oil that threaten stability within and between countries, the Chatham House think tank said.
"Trade is becoming a frontline for conflicts over resources - at a time when the global economy is more dependent than ever on trade in resources," the London-based think tank said in a report on Monday.
"Higher prices and higher volatility have increased the stakes within and between countries," the report, "Resources Futures" said.
It recommended the formation of a group of the top 30 resource producers and consumers to work together to iron out sharp price changes and reduce protectionism.
"We believe that confronting hard price volatility upfront is a major insurance policy for the global economy," Bernice Lee, the lead author of the report, said.
As only eight countries produce the majority of the world's commodities and demand keeps rising, prices are very prone to fluctuations and this, rather than outright scarcity, is set to be the major difficulty, the think-tank said.
The size of fluctuations in commodity prices has more than tripled since 2005 compared to the period from 1980, the report showed, based on International Monetary Fund data.
When this affects basic household goods there can be major consequences.
EXISTENTIAL THREAT TO SOME GOVERNMENTS
"If you look at what the initial reasons were for people hitting the streets in North Africa during the Arab Spring a lot of it started off with people being angry about the price of bread," Rob Bailey, another of the report's authors, told a briefing in London.
"It's almost an existential threat to some governments in some parts of the world, this issue of price volatility."
Unlike previous waves of volatility, the current period of fluctuating commodity prices is not driven by a fundamental crisis such as a world war or great depression, Bailey said.
"We don't have that kind of obvious crucial factor this time. It appears to be an actual structural change in the way the global economy has organised itself, which has led to this and that's why we think it's likely to last into the medium term," he said.
The report also listed water scarcity, climate change and energy constraints as among problems for output of resources.
For example mining projects in Chile and Mongolia have recently been delayed due to energy and water shortages, potentially affecting world prices, Lee said.
Nationalisation of commodity companies, the confiscation of foreign-owned assets, and windfall profit taxes are also more likely in an era of fluctuating prices, the report said.