"The report finds that while biofuels will offset only a modest share of fossil energy use over the next decade they will have much bigger impacts on agriculture and food security," it said in its annual State of Food and Agriculture report.

Growing demand for biofuels will boost prices of agricultural commodities in the next 10 years, the report said.

For instance, if demand for biofuel agricultural feedstock rose 30 percent by 2010 from 2007, it would drive sugar prices up by 26 percent, maize prices by 11 percent and vegetable oil prices by 6 percent, FAO said.

With global stocks low and crops strongly dependent on weather, food prices would remain volatile, it said.

Anti-hunger campaigners have blamed biofuels, which convert crops such as maize, sugar, oil seeds and palm oil into liquid fuel for use in cars, for pushing up global food prices, contributing to soaring food bills in the last two years.

The global food import bill is expected to jump 26 percent to US$1,035 billion in 2008, powered by price rises in rice, wheat and vegetable oils, FAO said.

Looking ahead to 2010, FAO forecast a 7 percent rise in the world output of main agricultural crops -- wheat, rice, coarse grains, rapeseed, soybean, sunflower seed, palm oil and sugar -- compared to 2007.

URGENT

The food versus fuel debate was stoked last year when then UN envoy on the right to food, Jean Ziegler, said using arable land to make fuel was a "crime against humanity".

The FAO report uses far less dramatic language and does not quantify biofuels' contribution to commodity price spikes which were also due to poor harvests and demand for a richer diet in places like China and India.

But it does say the rise in biofuels has put more people at risk of hunger and requiring food aid and other assistance.

It also pours doubt on the claim that biofuels reduce carbon dioxide emissions.

Crops soak up CO2 -- the main greenhouse gas blamed for climate change -- when they grow, but fuel used in their cultivation and processing reduces that efficiency and if trees are cleared to plant them, any gains can be lost.

"In many cases, increased emissions from land-use change are likely to offset or even exceed the greenhouse gas savings obtained by replacing fossil fuels with biofuels, and impacts on water, soil and biodiversity are also a concern," FAO said.

With the exception of sugar cane ethanol production in Brazil, biofuel production only thrives when subsidised.

"There is an urgent need to review current policies supporting, subsidising and mandating biofuel production and use," the report said, recommending more funding be directed to "second generation" biofuels which will come from non-food plant matter such as straw or algae.

Transportation accounts for 29 percent of the world's total energy consumption and only 0.9 percent of that comes from biofuels, a proportion that the International Energy Agency says could rise to 2.3 percent by 2015 and 3.2 percent by 2030.

Biofuels' rise could provide an opportunity for farmers in developing countries to develop the new cash crops, the report said, but that would only happen if subsidy regimes were changed to favour poorer countries rather than richer ones.

(Editing by Christopher Johnson)