ALFA president, Jim Cudmore, says the rest of the world is moving away from Government assistance towards grain-based ethanol production because of increased food prices and environmental problems.

"The world's leading analysts from the World Bank, International Monetary Fund and Organisation for Economic Cooperation and Development have stated that Government mandates and other support for grain based ethanol is responsible for most of the 140pc increase in food prices since 2002," Mr Cudmore said.

"Given Australia's variable crop yields, grain derived biofuels can also only hope to replace between 2-5pc of Australia's transport fuel demand.

"Basic economics dictates that Government intervention through the creation of an artificial and inflexible demand for grain will lead to increased grain prices particularly when grain production is low."

Mr Cudmore also said that claims that ethanol is cheaper than conventional fuel is misleading.

"The CSIRO states that ethanol has 34pc less energy than conventional fuel meaning that the current 2-3 cent/litre discount does not fully compensate for ethanol's poorer fuel economy.

"It seems the NSW Government is not content with driving up food prices for consumers - they also plan to increase petrol costs as well."