POOR exhibition quality and less that brilliant sales have led the Queensland government to overhaul the Cairns Indigenous Art Fair.

Indigenous arts centres struggled to cover the cost of attending the event and galleries found it difficult to justify commercially, says a report commissioned by Arts Queensland and Events Queensland.

Arts Queensland will step away from running the fair that it started in 2009 as part of its Backing Indigenous Art Initiative. There will be no fair this year, and the next, in 2014, will be delivered by a different entity, after the report recommended an independent company be formed to run the event.

The report found there was "growing disquiet" among exhibitors, curators and collectors about the "variable quality" of work at CIAF, which relied on a small group of artists to participate every year.

It said the fair, held at the Cruise Liner Terminal in Cairns, should be renamed the Cairns Indigenous Art Festival and be a biennial event similar to the Sydney Biennale.

Each of the past two fairs made about $600,000 in sales. Last year's received $625,000 funding from the state government. The report outlines a new model, with a strongly curated exhibition, also open to indigenous artists from outside Australia, taking place in the terminal while indigenous art centres and other exhibitors would be invited to sell their work in a separate pavilion nearby.

This year a small event called CIAF Presents will be held in place of the fair. The government has put aside $1.57 million to support CIAF Presents and the following two art fairs. The report recommends continued government support but the new entity will be expected to attract more sponsorship.