Agricultural prices are projected to increase worldwide over the next 10 years because of an increasing demand for biofuels, an international report said Wednesday.

In their joint, annual report the United Nations Food and Agricultural Organization (FAO) and the Paris-based Organisation for Economic Development and Cooperation (OECD) predict that world trade will grow for all commodities in the next decade.

Agricultural Outlook 2007-2016 says recent price hikes can be attributed to droughts in wheat-growing regions and low stocks.

Still, high prices will remain because of structural changes, the biggest being demand for biofuel.

"The growing use of cereals, sugar, oilseed and vegetable oils to produce fossil fuel substitutes, ethanol and bio-diesel … is underpinning crop prices and, indirectly through higher animal feed costs, also the prices for livestock products," the report says.

The report predicts a 70 per cent increase in global vegetable oil trade, combined with an increase of 13 per cent in coarse grain trade and a 17 per cent increase in wheat trade by 2017.

Over the same period, the report predicts the beef and pig trade will grow by more than 50 per cent.

As the world's fourth largest food exporter contributing five per cent of the world's agricultural exports, Canadian farmers will benefit significantly from rising agricultural prices, said Merritt Cluff, chief economist at the FAO.

But current gains have been offset by the strength of the Canadian dollar, she said.

"The main caveat, as you all know, has been the exchange rate, which has almost dipped to parity. That immediately impacts on export revenues. Even though prices may be higher, it's dampened against an exchange rate appreciation that Canada has seen against the U.S. dollar," she said.