The Livestock Feed Grain Users Group, which covers pig, chicken, cattle lot-feeding, dairy and egg industries, said there had been little thought of the consequences of mandating ethanol.

A report compiled by the Centre for International Economics has found that far from boosting regional Australia, mandated ethanol will blow-out Australia's balance of payments, cut Australian grain and livestock exports and increase the amount of grain imported into the country.

The National Party and some lobby groups want ethanol - which can be made from sugar cane and grain - to be mandated in the nation's fuel supply in levels up to 10%. They argue this would reduce Australia's reliance on oil, while also helping the environment and farmers.

But the Livestock Feed Grain Users Group argue that mandating or even subsidising ethanol will not promote activity and create employment in regional Australia, nor deliver a range of other environmental and health objectives.

"Mandated or subsidised ethanol produced from grain will distort competitive market forces and impede Australia's ability to sell its primary and value-added food products on the international market," said users group chairwoman Kathleen Plowman.

"It will have a serious negative impact on Australia's balance of payments by lowering exports of high-value livestock products, lead to a severe contraction in grain exports, which may require substantial structural adjustment in the wheat industry, and increased imports of grain."

The report found that mandating ethanol would result in an influx of cheap, imported ethanol from large producers such as Brazil.

If taxes were placed on imported ethanol, then it would be just as cheap for companies to import grain to produce the ethanol domestically.

Grain prices could rise to as much as A$450 a tonne, making it too expensive to sell overseas. While grain farmers might benefit from these high prices, livestock industries would face problems feeding their animals.

During droughts, Australia would have to import large amounts of grain to meet the expected 12.1 million tonnes of grain needed to meet a 10% mandate.

At the same time, the price of fuel would rise around A7c a litre, the report said.

The report found that petrol and diesel imports would fall about A$1.3 billion, but the economy would lose A$2.9 billion a year in wheat exports.

The report did not, however, analyse the effect of using ethanol sourced from sugar crops.