Biofuel demand could help the world's rural poor, the report says.
Governments need to review urgently their policies on growing crops for biofuels, UN food chiefs have warned.
In its annual report, the UN Food and Agriculture Organisation (FAO) called for rich countries to remove subsidies to allow poorer nations to compete.
It said biofuels were of "limited use" for solving the planet's energy needs.
But the report said using crops such as sugar, maize and oilseeds as liquid biofuels would continue to push up food prices over the next decade.
"Biofuels present both opportunities and risks. The outcome would depend on the specific context of the country and the policies adopted," said FAO chief Jacques Diouf.
"Current policies tend to favour producers in some developed countries over producers in most developing countries.
"The challenge is to reduce or manage the risks while sharing the opportunities more widely."
[Trade barriers] create an artificial market and currently benefit producers in OECD countries at the expense of producers in developing countries
Director General, FAO
Experts disagree on the role that biofuels play in fuelling global food price increases, but according to agricultural policy think-tank, the International Food Policy Research Institute, they accounted for 30% of the price increase between 2006 and 2007.
The FAO said biofuel production based on agricultural commodities now covers nearly 2% of the world's consumption of transport fuels.
Although that growth is expected to continue, the contribution of liquid biofuels to global energy remains limited, the report said.
However, the demand for agricultural feedstocks for liquid biofuels will continue to grow over the next decade if not longer, the report went on.
Such demand had the potential to bring real benefits to rural communities in developing countries - creating income and employment.
But these opportunities, Mr Diouf said, would be "greatly advanced" by the removal of agricultural and biofuel subsidies and trade barriers.
Such barriers "create an artificial market and currently benefit producers in OECD [Organisation for Economic Co-operation and Development] countries at the expense of producers in developing countries," he said.
The US, for example, heavily sustain its corn-for-ethanol industry, paying out 50 cents a gallon for each of its 27 billion litres of ethanol produced. Combined with farming subsidies, the ethanol sector receives a total of some $6bn in support each year, analysts say.
The report warns that high agricultural commodity prices were having a negative impact on developing countries dependent on imports to meet their food requirements.
And it found that the production and use of biofuels "did not necessarily contribute as much to reducing greenhouse gas emissions as was previously assumed".
Investing in researching and developing the next generation of biofuels - such as wood, tall grasses, forestry and crop residues - "hold more promise in terms of reductions in greenhouse gas emissions with less pressure on the natural resource base," Mr Diouf said.