"As long as governments impose mandates (obligations to blend fixed proportions of biofuels with fossil fuels, or binding targets for shares of biofuels in energy use), biofuel production will aggravate the price inelasticity of demand that contributes to volatility in agricultural prices," the report says.

Biofuel demand boosted sugar cane prices

While population growth, increased urbanisation and rising incomes in emerging economies are expected to play key roles in increasing world demand for food, the use of land for biofuels production is forecast to exert "considerable upward pressure" on future food prices, the report says. Between 2007-09, biofuels accounted for, on average, 20% of demand for sugar cane crops globally, 9% for vegetable oil and coarse grains, and 4% for sugar beet crops, it adds.

If the price for biofuels crops exceeds that in the food market, there is a higher risk that land will be diverted for biofuel production, putting further pressure on food prices. Rising oil prices, which make biofuels a more attractive option, will further exacerbate the problem - as will policies that support biofuels, the report argues.

"Subsidies to first-generation biofuel production lower biofuel production costs and therefore increase the dependence of crop prices on the price of oil," the report says. "Such policies warrant reconsideration."

In addition to urging G20 nations to scrap biofuels subsidies and mandates, the report recommends that governments:

• open international markets to promote the production of renewable fuels and feed stocks;
• speed up research into ways to improve energy security and lower carbon emissions; and
• encourage greater energy efficiency in agriculture.

If governments retain subsidies, they should at least have a contingency plan which allows for support to be temporarily adjusted "when global markets are under pressure and food supplies are endangered", the report recommends.

Report points to food prices and climate risk

While the report stops short of making a direct link between climate change and agricultural pricing volatility, it says climatic factors, such as drought and fires, have "indisputably contributed" to rising food prices, and adds that experts "concur broadly" that climate change will have a negative effect on some food-growing regions.

"Clearly, climate change will provoke some adjustment of production patterns around the world, as well as increased risks of local or regional supply problems that could add to future volatility," the report says.

The report calls for greater investment in R&D to enhance agricultural resilience to climate change and resource scarcity, and urges G20 governments to support the scaling up of fiscal risk management services, such as the creation of advisory services to help governments evaluate exposure to climate change and mitigate its financial risks.

The report was produced by: the UN's Food and Agriculture Organization, the UN Conference on Trade and Development, the UN High-level Task Force on the Food Security Crisis, the UN World Food Programme, the World Bank, the World Trade Organization, the International Fund for Agricultural Development, the International Monetary Fund, the OECD, and the International Food Policy Research Institute.