The Government's apparent u-turn on biofuels has been welcomed by those concerned about crops being diverted from food use - but greeted with caution by those who fear investment in alternative sources of fuel will fall.

The Gallagher Report, published this week by the Renewable Fuels Agency alongside the Cabinet Office Food Matters publication, examined the indirect effects of biofuels and their effect on food prices and concluded that the government "should amend but not abandon its biofuel policy".

The current target is to get 2.5% of UK transport fuels from biofuel sources this year, rising to 5% by 2010. But the report recommended the targets should only rise by 0.5 percentage points a year until 2013-14.

"The Government is sensible to slow down the growth rate of biofuels," said Alex Waugh, director of the National Association of British and Irish Millers.

However, the pro-biofuel lobby feared it would hinder future investment in sustainable fuels. "Our main concern is the damage the changed Government stance will have on the confidence of potential investors," said Paul Thompson, policy analyst at the Renewable Energy Association.

"With more reviews planned in the future, the biofuel industry might be seen as being permanently on probation."

According to a leaked report from the World Bank this week, biofuels have increased food prices by 75%, but Thompson dismissed the figure as wildly sensational.